RT Journal Article SR Electronic T1 Pairs Trading with Copulas JF The Journal of Trading FD Institutional Investor Journals SP 41 OP 52 DO 10.3905/jot.2016.11.3.041 VO 11 IS 3 A1 Wenjun Xie A1 Rong Qi Liew A1 Yuan Wu A1 Xi Zou YR 2016 UL https://pm-research.com/content/11/3/41.abstract AB Pairs trading is a well-known speculative investment strategy, with the distance method the most commonly implemented variation. However, the profitability of this approach has decreased in recent years. This article seeks to generalize the pairs trading strategy using a copula technique to explicitly capture the marginal distributions as well as the dependency structure between the stock returns. With a better understanding of the joint distribution of the two stocks, practitioners could gain preferential entry positions and have more trading opportunities. The overall empirical results verify the proposed strategy’s ability to generate higher profits compared with the conventional distance method.TOPICS: Statistical methods, security analysis and valuation