pairs-trading
With 5 pairs, the strategy returned +11.80% annually on Indian stocks — beating SPY. With 20 pairs, it dropped to +6.45%. India is the one market where selective pairs trading generates alpha, but only if you know when to stop adding pairs.
pairs-trading
We ran a multi-pair portfolio construction backtest on US stocks from 2005 to 2024. Adding more pairs made returns worse, not better. Transaction costs erode marginal convergence gains, and the best configuration still lost 0.43% annually.
pairs-trading
We ran a multi-pair portfolio backtest across 11 exchanges. Positive returns on 5 of 11, but only Korea and Sweden have positive Sharpe ratios. India at 5 pairs is the single configuration that beats the S&P 500.