PAIRS TRADING STRATEGY – BACKTEST AND STATISTICS

Pairs Trading Strategy involves being neutral to the direction of the market. This article looks at what pairs trading is, how it works, and its advantages and disadvantages (pros and cons). The main benefit of pairs trading is market neutrality. In the end, we test some simple pairs trading strategies. Pairs trading is profitable and still working.

We backtest the following trading rules:

➨ We buy if the three-day RSI of the pair ratio (spread) is below 10.

➨ We sell when the three-day RSI is above 60.

If the ratio of KO/PEP is below 10, then enter at close by buying KO and shorting PEP. Belo is the result from 2000 until today.

We have another pairs trading strategy : GS/MS (Goldman Sachs and Morgan Stanley) explained here >>

https://www.quantifiedstrategies.com/pair-trading-strategy/