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.

Pairs trading strategies involve market-neutral strategies that aim for profits in any type of market, be it sideways, down, or up. Jim Simons’ The Man Who Solved The Market describes the origin of pairs trading: at Morgan Stanley in the 1980s. Small independent traders have used the same techniques, especially at proprietary firms because pairs trading needs leverage to efficient.