Frequently Asked Questions

Why have you launched ArbMaker?

We launched because there is no product in the financial investment software marketplace, at the time of writing in Q4 2011, which provides a comprehensive, cointegration-based arbitrage tool covering all the ground from testing to tradability. There are a couple of sites that provide what is essentially the p-value (probability) statistic that a given pair is cointegrated. But we have yet to see one of these document how the number was calculated or to what degree of confidence. Did it include the right variables in the right order? What are the mean-reversion characteristics – if it has any – of the pair? Was it calibrated accurately in terms of lags? And so on.

What level of user expertise is ArbMaker suitable for?

Much of the statistics inside the ArbMaker engine is likely to be familiar to professional traders.

For most retail investors the complexity of the stat may have put reproduction of the procedures themselves – using the likes of Matlab, R or even Excel – out of reach. However, the principles of going long/short are familiar to many. Perhaps a parallel is driving a car: we don’t need to know how to make one in order to operate one.

Ultimately we recommend potential subscribers, professional and retail alike, read our glossary pages in full, follow up with additional research where they see fit, take the trial and then decide if the software is for them.

Isn’t the Johansen cointegration test better than the Engle-Granger method?

This depends what is being tested. For small samples and multivariate tests (ie anything more than two variables) the Johansen method is better. But for bivariate testing of typical runs of financial price data the Engle-Granger method has certain advantages. For example, by using a criterion of minimum variance (as opposed to the Johansen criterion of maximum stationarity) the method lends itself far more to risk/portfolio management applications. For a fuller discussion go here to read Professor Carol Alexander’s Optimal Hedging Using Cointegration paper.

It may also be worth pointing out that the Johansen method has its own drawbacks: sensitivity to lag selection, how to select the best cointegrating vector, ambiguity in the presence of conflicting t-values and (according to the Michael Wickens critique) a tendency to signal cointegration where none exists.

Will you not be reducing your own arbitrage opportunities by selling this tool?

ArbMaker is not a black-box program doing the same thing for everyone. It is a tool traders will configure to their separate methods, markets and preferences. Some, for example, may only trade pairs cointegrated at 95% confidence while others prefer pairs well inside the 99% interval. Or perhaps some stick entirely to US markets while others mix geographies. Or maybe some trade only large-caps and other do not. And so on.

Can I buy the software outright?

We considered perpetual licenses to recover our development costs but concluded the potential pricing was likely to exclude a significant segment of the retail investor market. A subscription model makes ArbMaker more accessible and obliges us to work hard to keep subscribers – who can cancel at the end of their term as they see fit – satisfied. But we are always open to offers!

What is the recommended spec to run ArbMaker?

The more RAM the better. ArbMaker was coded for speed and avoids writing unnecessary raw data to its database for this reason. In beta testing a 6GB RAM Windows pc with a i7 processor will download price data from Yahoo! and compute them at a rate greater than 20 cointegration calculations per second. Speed is also a function of the type and quality of the web connection and it is here bottlenecks tend to form. Once the results have been filtered and analysed users may then save what they want to the database.

Are there additional modules you will add to ArbMaker in the future?

This is the intention and we already have a list. Please contact us if there is a particular feature you would like to see.

Do you offer trial periods?

A 30 day free trial is available. If you are interested in participating in beta trials for future modules please let us know.

Do you have a Support policy?

We aim to reply to all email requesting support or information within 48 hours and most in less than 24 hours. But there is a small likelihood that replies may sometimes take longer. It is due to this constraint that we do not try to sell 24/7 ‘Maintenance Plans’ but include support and upgrades in the subscription plan prices.

Will you add more real-time data feeds?

This is the goal. Subscribers currently have a choice of Yahoo! free historical and delayed data which covers many global markets; and IQFeed historical and real-time data which is US focussed. Our next feed inclusion will cover real-time European markets.

Yahoo! historical data is sometimes patchy with date ranges missing or stock splits unaccounted for fully. This is especially true for non-US instruments and these types of factors can affect the cointegration results materially. IQFeed is a subscription service and may prove a better long-term partner for users.