Financial Analysis - Build a ChatGPT Pairs Trading Bot - The Initial Prompt

The video tutorial explores using ChatGPT to generate a pairs trading algorithm in Python. It highlights the importance of understanding the code, identifying errors, and the risks of blindly trusting AI-generated code. Key concepts such as Z-scores, spread, rolling mean, and Bollinger Bands are explained. The tutorial emphasizes the need for critical thinking and verification when using AI tools for coding.

What is the initial step in using ChatGPT for a pairs trading algorithm?

• Ignoring the code explanation

• Understanding the code and identifying mistakes

• Using a different programming language

• Running the code without analysis

Why is it important to understand the code rather than just running it?

• To ensure it runs without errors

• To identify semantic errors and improve understanding

• To reduce the execution time

• To make it compatible with other software

What is a common mistake when computing Z-scores in the provided code?

• Using incorrect data types

• Not using any statistical measures

• Using future data for calculations

• Ignoring the mean and standard deviation

What is the problem with using future data in the algorithm?

• It is necessary for Z-score computation

• It is not available in real-time trading

• It simplifies the calculations

• It makes the algorithm more accurate

What are Bollinger Bands used for in trading?

• Determining market trends

• Calculating average returns

• Identifying overbought or oversold conditions

• Predicting future stock prices

What does the rolling mean help to achieve in the algorithm?

• Smooth out the time series

• Increase the volatility

• Predict future prices

• Reduce the data size

How are long and short signals determined in the algorithm?

• Using boolean operations on spread values

• Using historical data only

• By calculating the average price

• By comparing asset prices directly

What is the role of boolean operations in setting asset positions?

• To simplify the code

• To manage memory usage

• To ensure correct arithmetic operations

• To handle data types

What is a critical error in computing portfolio returns in the code?

• Using Z-scores instead of actual returns

• Ignoring asset positions

• Using cumulative sum incorrectly

• Not plotting the results

Why is it dangerous to rely solely on code execution without understanding?

• It requires more computational resources

• It can result in semantic errors

• It may lead to syntax errors

• It increases the execution time