Strategies · Library · Fixed income
§5.7Pairs and relative value
Fifty-fifty butterfly
A butterfly where each wing carries half the middle's rate sensitivity. It stays roughly neutral to small steepening or flattening, but is not zero cost.
- Asset class
- Fixed income
- Held for
- Weeks
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Three maturities with wing dollar durations set to half the body
- Entry and exit
- Open at set sizes, hold, close on curvature move.
- Sizing
- Wings each carry half the body's dollar duration
How it fails
- Not dollar-neutral
- Short leg
- Curvature may not revert
Data it needs
- inputs ARCANE does not hold
Needs shorting and bond-level data.
How ARCANE uses it
None yet: ARCANE does not hold the data this trades on.
Requires a short leg.
Filed under the pairs and statistical arbitrage card
Find two securities whose prices moved together for a year. When the gap between them opens past two standard deviations, buy the laggard and sell the leader.
A paper plan from this card holds 5 to 126 days, stops at 1.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §5.7, p. 73 of the SSRN version. Described in our words. Pairs and relative value is ARCANE’s filing, not the book’s.