🔬 ADVANCED QUANTITATIVE · STRATEGY TEMPLATE

Statistical Pairs
Trade

Trade the spread between two correlated instruments. When correlation breaks, the spread is expected to revert, go long the underperformer, short the outperformer.

QuantitativeDaily1.5:1 R:RLow Risk
Deploy This Strategy See Rules

Rules & Configuration

The full rule set, required indicators, suggested configuration, execution flow, and performance parameters for the Statistical Pairs Trade setup.

Trade the spread between two correlated instruments. When correlation breaks, the spread is expected to revert, go long the underperformer, short the outperformer.

Indicators Used
Correlation (90d)Spread Z-ScoreCointegration Test
Rules
📈 Pairs Entry
  • Select two instruments with correlation > 0.80
  • Confirm cointegration (Engle-Granger or Johansen test)
  • Calculate spread Z-Score
  • When Z-Score > 2.0: Short the outperformer, Long the underperformer
  • When Z-Score < -2.0: Reverse the positions
  • Exit when Z-Score returns to 0
💡 Pro Tip

Classic pairs: XAU/XAG, CL/BZ, ES/NQ, AAPL/MSFT. Always verify cointegration before trading. Correlation alone is insufficient.

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