Profiting Off the High Correlation of Cryptocurrency Pairs Using Statistical Arbitrage

Maxwell Dann () and Ilias Kotsireas ()
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Maxwell Dann: Wilfrid Laurier University
Ilias Kotsireas: Wilfrid Laurier University

Chapter Chapter 16 in Mathematical Research for Blockchain Economy, 2024, pp 327-335 from Springer

Abstract: Abstract This paper examines a statistical arbitrage strategy proposed by [1] (Leung T, Nguyen H (2019) Constructing cointegrated cryptocurrency portfolios for statistical arbitrage. Stud Econ Finance 36(4):581–599. ). It aims to exploit correlations between Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Backtesting on a dataset comprising over 81,000 data points yields a 100% win rate, while live trading implementation sees win rates ranging from 79 to 100%. The live bot generated excess return ranging from −0.4 to 8.1% versus its benchmark. By focusing solely on statistical properties, the strategy offers a macro-agnostic approach to cryptocurrency trading, potentially leading to more stable and predictable outcomes.

Keywords: Cryptocurrency; Cointegration; Bitcoin; Ethereum; Litecoin; Bitcoin cash; Statistical arbitrage; Market neutral (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnopch:978-3-031-68974-1_16

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DOI: 10.1007/978-3-031-68974-1_16

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