Statistical Arbitrage

Every day our cointegrated pair selection model goes through roughly 127,000 pairwise combinations to identify optimal pair trade opportunities. On top of typical pair trade selection analysis, which incorporates ADF, KPSS, VECM, R-Squared, half-life analysis, we apply our proprietary exogenous shock overlay to narrow down quality pairs selection and timing. Below is an example of one such pair our model has identified.

 

Two US stocks with symbols ALXN and AN with a hedge ratio roughly about 4 and half-life around 30 days. ZA is our proprietary Z-Amplitude where a value above 2 is identified as a shock. ZS is the Z-Score of the price and ZCTS is the Z-Score of contextual value.

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