Pairs Trading FTSE-DAX

Not necessarily, but European hours (3 AM - 11:30 AM ET) offer best liquidity. You can use limit orders outside these hours, but execution may be worse. The overlap period (9:30-11:30 AM ET) is convenient for Canadians.

ETF pairs (EWU/EWG) can be traded in TFSA, but shorting typically requires a margin account. You might use inverse ETFs or focus on long-only positions. Consult your broker about TFSA shorting rules.

FTSE-DAX offers exposure to European markets and may have different behavior than US pairs. It's also about diversification - if you're already trading US pairs, FTSE-DAX provides another uncorrelated opportunity.

If correlation drops significantly (below 0.5), the pair may stop behaving predictably. This happened during Brexit. Exit existing positions and wait for correlation to stabilize before trading again.

Yes, currency (GBP/EUR) can significantly impact returns. For beginners, use currency-hedged ETFs (HEWU/HEWG) to remove this complexity. As you gain experience, you can manage currency exposure directly.

Weekly is standard. Also update if the 60-day rolling beta changes by more than 10%. More frequent updates can improve precision but add complexity and transaction costs.

Monthly is reasonable for ongoing monitoring. Also test after any major events (elections, policy changes). If the p-value from ADF test exceeds 0.05, consider pausing the strategy.

Trade when both markets are open: roughly 8 AM - 4:30 PM London time (3 AM - 11:30 AM ET). Place limit orders for both legs simultaneously. Futures offer extended hours but still best during European session.

With a 30-day Z-Score period, typical holds are 10-25 days. The half-life of FTSE-DAX spread is usually 10-20 days. Set time stop at 30 days if spread hasn't converged.

ETFs are simpler and accessible (EWU/EWG available at most brokers). Futures offer better liquidity and leverage but require understanding contract specs, rolls, and margin. Start with ETFs; consider futures as you scale.

Use state-space modeling where the hedge ratio is a state variable that evolves over time. Python (pykalman, filterpy) or R (dlm, KFAS) have libraries. The Kalman filter updates the hedge ratio with each new observation, adapting faster than rolling regression.

Test with walk-forward validation. Typically 20-40 days works well. Shorter periods give more signals but more noise; longer periods are smoother but slower. The period should be roughly 2-3x the half-life.

Roll 5-7 days before expiry to avoid thin liquidity. Watch the calendar spread (cost of rolling). Roll both legs together to maintain neutrality. Consider the impact of contango/backwardation on roll costs.

Track: (1) Spread return = convergence profit, (2) Currency return = GBP/EUR impact, (3) Hedge slippage = cost of imperfect hedge. Sum should equal total P&L. This helps identify if currency is helping or hurting.

Yes, diversifying across uncorrelated pairs improves risk-adjusted returns. Good complements: SPY/QQQ (US), EWC/SPY (Canada/US), GLD/GDX (Gold). Ensure the pairs themselves are uncorrelated. Allocate equal risk to each pair.