pairs trading
We ran a full active z-score pairs trading backtest on US large caps (NYSE+NASDAQ+AMEX) from 2005 to 2024. 86.6% of signals converged. The strategy returned -1.22% CAGR anyway. Here is why convergence rate is a misleading metric.
pairs trading
We tested active z-score pairs trading on 7 major exchanges from 2005 to 2024. Convergence rates ranged from 77% to 87%. Every exchange returned negative CAGR. The same mechanism that fails in the US fails identically in Japan, UK, Germany, Hong Kong, Taiwan, and Canada.
pairs trading
We ran the same correlation-based pairs trading strategy on 11 exchanges from 2005 to 2024. No exchange beat its local benchmark. But the differences in why they failed, and by how much, reveal real structure in each market.
pairs trading
We tested 2,579 highly correlated US stock pairs for cointegration. Only 516 passed (20.0%). Utilities led at 31.4%. Here's the Engle-Granger method, sector breakdown, and the counterintuitive finding: lower correlation predicts higher pass rate.
pairs trading
Japan ran active pairs in 19 out of 20 years, more than any other exchange tested. 0.61% CAGR, beta 0.062, +38.77% excess vs Nikkei in 2008. But the Sharpe of +0.131 only looks positive because Japan's risk-free rate is 0.1%. At a 2% rate, it's -0.35.
pairs trading
We ran the same pairs trading strategy on 12 stock exchanges from 2005 to 2024. Every single market generated near-zero or negative nominal returns. The academic consensus (Do & Faff 2010) that pairs trading profitability declined post-2002 holds globally, not just in the US.
pairs trading
Among 12 exchanges we tested, Japan (JPX) is the only market with a positive Sharpe ratio (+0.141) and the highest investment rate: 95% of years had active pairs. We dig into why Japan's market structure makes it uniquely suited for pairs trading.
pairs trading
We screened 3,701 US large-cap stocks for pairs trading candidates: 884,000 same-sector correlation tests, 2,579 candidates surviving all filters. 87% came from Financial Services. Here's why, and what the data looks like.
pairs trading
Pairs trading bets that two related stocks will snap back together after diverging. The theory is sound. Gatev et al. (2006) found 11% excess returns from 1962-2002. We ran the same approach on 2005-2024 across 12 exchanges. Here's what we found.
pairs trading
A full 20-year backtest of correlation-based pairs trading on US stocks. -0.50% CAGR, six cash years, beta of 0.067. The 2008 defense was real. The long-run cost was too.