Financial Analysis - Build a ChatGPT Pairs Trading Bot - Fixing the Spread

The video tutorial discusses the concept of mean reversion in trading, highlighting the importance of ensuring that spread signals are stationary and mean-reverting. It emphasizes the need to normalize asset prices before calculating spreads to avoid skewed results. The tutorial compares different methods of spread calculation and evaluates their effectiveness in generating trading signals. It concludes by acknowledging the need for further improvements in the approach.

What is meant by the term 'mean reverting' in the context of asset prices?

Explain why the spread signal discussed in the text is not stationary.

What is the significance of normalizing or standardizing asset prices before computing the spread?

Discuss the implications of using the incorrect version of the spread in trading signals.

What observations can be made about the return and spread behavior after using the correct version of the spread?