Pairs Trading Strategy

Pairs trading is a market-neutral trading strategy that aims to capitalize on the relative price movements of two related securities. This repository provides an example implementation of the pairs trading strategy using Python. The strategy involves selecting pairs of securities, testing for cointegration, generating trading signals, and evaluating the strategy's performance.

Table of Contents

• Overview
• Getting Started
• Concept Explanation
• Running the Code
• Results
• Conclusion

Overview

The pairs trading strategy is explained with code snippets and explanations for each step. It covers the following key aspects:

• Synthetic data generation for cointegrated securities (X and Y).
• Cointegration test using the statsmodels library to ensure the stability of the ratio between securities.
• Generation of trading signals based on cointegration test results.
• Implementation of the strategy using historical data.
• Parameter optimization to avoid overfitting.

Getting Started

To run the provided code examples, you'll need the following libraries:

pip install statsmodels pandas matplotlib seaborn