Cointegrated Stock Pairs: Top 30 August Vintage Post a Perfect Record in First Three Weeks of Live Trading Out-of-Sample

Cointegrated stock pairs

Pair Trading stocks involves simultaneously entering LONG (i.e. BUYING) and entering SHORT (i.e. SELLING) two “paired” stocks.  It has been shown to provide protection from market crashes, controlled risk, low correlation to the market averages and ability to generate significant and consistent returns.  Multiple recent research studies have demonstrated returns to be in the range of 2%-4% per month*, on a 4:1 leverage basis, over more than a decade.  Add in the use of Cointegrated Stock Pairs and the historical returns look even stronger**.

PairTrade Finder® PRO’s Top 30 Cointegrated Stock Pairs

But we prefer to put our money where our mouth is.  Some of you may know that when you subscribe to PairTrade Finder® PRO under one of our periodic Special Offers, we include our Top 30 US Equities Pairs.  We’ve arranged for these 30 cointegrated stock pairs to be auto-loaded into our platform when you boot up PRO.

How do we find these pairs?

We analyse and over 1,800 US equities with market caps over $2 billion and daily traded volumes of at least $2 million to find you the best cointegrated stock pairs for you to trade.  We update this analysis on a more or less quarterly basis.  This ensures these pairs stay fresh and their correlations and cointegrations strong to offer you the highest-probability setups. All pairs must meet strict additional fundamental correlation criteria and profitability and robustness measures.

August 2020 Vintage Top 30 Early Performance: Live Signal Results vs. Previous Backtested Results

We launched a new vintage of Top 30 Cointegrated Stock Pairs after the close on 21 August 2020.  They have 63-day lookbacks and 2.50 Entry Stretches and 0.80 Exit Stretches.  Here are the backtest results that led us to select these pairs:

Cointegrated Stock Pairs

94% Win Rate, 4.1x Reward/Risk, profits of $71,659 in a year (at $10k/leg trade size).  Frankly those are some pretty fantastic looking backtest results.

However, as any seasoned system trader knows, in-sample and out-of-sample results are very different things.

So here are the out-of-sample results of the exit signals and open trades of the August 2020 Vintage in from 24 August to 15 September 2020.  These trades represent signals you could have traded live:

Eight exits, eight winners, a 100% win rate, for a total profit in the the first three weeks of $3,907 (assumes a $10k/leg trade size). Wow.

And the currently open positions:

Cointegrated Stock Pairs

are showing a mark-to-market PnL of $-191 as of yesterday’s close.

That’s a $3,716 net profit showing for the out-of-sample trade signals on the August Vintage Top 30 since their launch three weeks ago.  The account margin employed to hold eight trades open at $10,000/leg is about $32,000 (at 5:1 CFD leverage).  So the three-week return on imputed margin for the August Vintage is approx. 11.6% (before margin interest expense but after assumed commissions and slippage of 10bp per leg, per trade).  See disclaimer below.

Relative Performance vs. S&P 500: Over 15% Alpha Generation in One Month

Over the same three weeks or so period, the S&P 500 (SPY ETF) lost 0.8%.  Levered at the same level as the imputed margin return above (5:1 CFD leverage), that would translate to a -4.0% loss (before margin interest).  That implies the Top 30 generated an alpha (performance relative to the index) on margin deployed of 15.6% for the period.  We find that result quite spectacular.

Do you see now why we like to trade cointegrated stock pairs?

Start learning to pair trade stocks long/short today.  Join our 30-minute webinar, free trial, 3-Hour Video Course, eBook and get the Top 30 US Equities Pairs to turbo-charge your potential results straight out-of -the-box. Sign up on this blog’s sidebar or at www.pairtradefinder.com.

Happy Trading!

The PairTrade Finder® Team

* See https://blog.pairtradefinder.com/pair-trading-research-studies-articles/ for studies underlying pair trading’s profitability.

** See https://www.researchgate.net/publication/273959237_Pairs_trading_and_selection_methods_Is_cointegration_superior

NB: The Top 30 U.S. equities pairs in PairTrade Finder® PRO are provided for informational and educational purposes only.  They should not be construed as personalized investment advice. It should not be assumed that trading using the parameters demonstrated by the Software will be profitable and will not result in losses. Please see our full Terms & Disclaimer.

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