📈 Statistical Arbitrage Backtesting Engine

Professional Pairs Trading Strategy with Cointegration Analysis

Designed for quantitative hedge funds and proprietary trading firms

🎯 Asset Selection

Ticker 1

Ticker 2

📅 Backtest Period

Start Date

End Date

⚙️ Strategy Parameters

Lookback Period (days)

Rolling window for z-score calculation

10 100

Entry Z-Score Threshold

Standard deviations from mean to enter position

1 3

Exit Z-Score Threshold

Standard deviations from mean to exit position

0 1.5

Transaction Cost (%)

Cost per trade as percentage of position

0 0.5

Strategy Analysis

Drawdown Analysis

Examples

Ticker 1	Ticker 2	Start Date	End Date	Lookback Period (days)	Entry Z-Score Threshold	Exit Z-Score Threshold	Transaction Cost (%)

📚 Strategy Overview

Statistical Arbitrage (Pairs Trading) This strategy exploits mean-reverting relationships between cointegrated assets:

Cointegration Testing: Identifies pairs with stable long-term relationships
Spread Construction: Creates market-neutral positions using optimal hedge ratios
Z-Score Signals: Enters positions when spread deviates significantly from mean
Risk Management: Exits positions as spread reverts to equilibrium

Key Concepts:

Hedge Ratio: Optimal ratio for constructing the spread (β from regression)
Z-Score: Standardized measure of spread deviation
Sharpe Ratio: Risk-adjusted return metric (target > 1.0)
Maximum Drawdown: Largest peak-to-trough decline

Risk Warnings:

Past performance does not guarantee future results
Cointegration relationships can break down
Transaction costs significantly impact returns
Requires careful position sizing and risk management

Built for institutional quantitative trading strategies.