Cryptocurrency Pair Trading

22 Pages Posted: 1 May 2023

See all articles by Chiara Lesa

Chiara Lesa

Vienna University of Economics and Business; WU Vienna University of Economics and Business

Ronald Hochreiter

WU Vienna University of Economics and Business; Webster University - Webster Vienna Private University

Date Written: April 28, 2023

Abstract

Pair trading is a strategy which relies on betting on the relative mispricing of the spread between two securities which share a long-term relationship. These strategies have shown to perform well with equities, however not much research has been conducted in the field of cryptocurrencies, even though this asset class has shown characteristics suggesting suitability for pair trading. The Distance Methods and Cointegration Method are applied to a set of cryptocurrencies at formation and trading periods of daily and hourly data. It is shown that the frequency of the selection period does not influence the pairs selected. Cointegration-selected pairs generally outperforms Distance selected pairs. When trading frequency is analysed, intraday trading is more profitable, but not when using a stop-loss. Cointegration over-performs Distance, as the cost of the latter selection are increased by the higher number of trades.

Keywords: cryptocurrency, trading, statistical arbitrage, pair trading, cointegration

JEL Classification: C22, C32, C52, G53, G12, G14, G15

Suggested Citation

Lesa, Chiara and Hochreiter, Ronald, Cryptocurrency Pair Trading (April 28, 2023). Available at SSRN: https://ssrn.com/abstract=4433530 or http://dx.doi.org/10.2139/ssrn.4433530

Chiara Lesa (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

Ronald Hochreiter

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Webster University - Webster Vienna Private University ( email )

Praterstrasse 23
Vienna, 1020
Austria

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