Pairs Trading and Statistical Arbitrage: AI Models for Market-Neutral Returns

2026-03-25 · AI & Machine Learning in Trading

Pairs TradingStatistical ArbitrageMarket NeutralCointegration

Pairs trading generates returns independent of market direction by exploiting temporary mispricings between related securities. Our AI at AI-Stock-Predictions.com identifies cointegrated pairs and optimal entry/exit thresholds.

Cointegration Testing

Our models test thousands of stock pairs for cointegration — a statistical relationship stronger than correlation. We use Johansen and Engle-Granger tests with adaptive lookback windows.

Dynamic Hedge Ratios

Static hedge ratios deteriorate over time. Our Kalman filter models continuously update hedge ratios to maintain dollar neutrality and minimize tracking error.

Entry and Exit Optimization

Z-score thresholds for entry and exit are optimized per pair based on historical mean-reversion speed, transaction costs, and recent spread volatility.

Pairs Dashboard

Explore active pairs trades at AI-Stock-Predictions.com.

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