{"id":43779,"date":"2025-12-27T12:11:10","date_gmt":"2025-12-27T11:11:10","guid":{"rendered":"http:\/\/david.melich"},"modified":"2025-12-27T12:11:10","modified_gmt":"2025-12-27T11:11:10","slug":"sample-strategy-3-trading-wtibrent-spread-2","status":"publish","type":"post","link":"https:\/\/vvv.quantpedia.com\/es\/sample-strategy-3-trading-wtibrent-spread-2\/","title":{"rendered":"Sample strategy #3 &#8211; Trading WTI\/BRENT Spread"},"content":{"rendered":"<p>\n\t<strong>&nbsp;&nbsp; Evans, Dunis and Laws <\/strong>show in their paper <strong>&quot;Trading Futures Spread: An Application of Correlation&quot;<\/strong> the possibility to use deviations from the fair spread value to bet on convergence back to fair value. They propose several ways to calculate fair spread value &#8211; via moving average, regression, neural network regression or other procedures. We present moving average calculation as an example trading strategy from the source paper.<\/p>\n<p>\n\t&nbsp;&nbsp; This simple strategy had an extraordinary <strong>indicative performance<\/strong> of nearly <strong>40%<\/strong> with <strong>22% volatility<\/strong> in their backtest. The estimated <strong>Sharpe ratio<\/strong> of <strong>1.64<\/strong> is therefore more than satisfactory.<\/p>\n<p>\n\t&nbsp;&nbsp; The source paper can be found on the following web page: <a href=\"http:\/\/www.fma.org\/Denver\/Papers\/pairetf.pdf\">http:\/\/www.palgrave-journals.com\/jdhf\/journal\/v15\/n4\/full\/jdhf200924a.html <\/a><\/p>\n<p>\n\t&nbsp;&nbsp; Our strategy overview with <strong>extracted trading rules<\/strong> and hypothetical <strong>performance chart with probability bands<\/strong> can be accessed here: <a href=\"http:\/\/www.quantpedia.local\/Screener\/Details\/100\">http:\/\/www.quantpedia.local\/Screener\/Details\/100<\/a><\/p>","protected":false},"excerpt":{"rendered":"<p>\n\t<strong>&nbsp;&nbsp; The WTI-Brent spread<\/strong> is the difference between the prices of two types of crude oil, West Texas Intermediate (WTI) on the long side and Brent Crude (Brent) on the short side. The two oils differ only in the ability of WTI to produce slightly more gasoline in the cracking ratio which causes WTI&rsquo;s slight pricing margin over Brent. As both oils are very similar their spread shows signs of strong predictability and usually oscillates around some average value. Could we use a trading strategy and exploit this spread&#39;s reversion?<\/p>","protected":false},"author":11586,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-43779","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts\/43779","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/users\/11586"}],"replies":[{"embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/comments?post=43779"}],"version-history":[{"count":0,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts\/43779\/revisions"}],"wp:attachment":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/media?parent=43779"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/categories?post=43779"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/tags?post=43779"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}