A PAIR TRADE IN SPY AND TLT: TESTING PAIRS TRADING STRATEGIES IN BONDS AND S&P500

Today, we test a pair trade in SPY and TLT. Is a pair trade in SPY and TLT profitable after big moves in opposite directions? We test this hypothesis. As it turns out, this is not a tradeable strategy.

We backtest the following trading rules:

➨ The S&P 500 (SPY) must fall at least 1.25 times more than the 50-day average of the H-L (high minus low) from yesterday’s close to today’s close.

➨ Opposite, the 20-year Treasury bonds (TLT) must rise 1.25 times more than the 50-day average of the H-L (high minus low) from yesterday’s close to today’s close.

➨ If both 1 and 2 are true, go long SPY at the close and sell short TLT at the close.

➨ Close both positions at the close x-days later.

We test the result by holding the pair overnight from today’s close until tomorrow’s close (we are long SPY and short TLT). Below is the equity curve.

You can find more info about this trading strategy here:

https://www.quantifiedstrategies.com/a-pair-trade-in-spy-and-tlt/