# Designing Efficient Pair-Trading Strategies Using Cointegration for the Indian Stock Market

arXiv: https://arxiv.org/abs/2211.07080 · HTML: https://mlsanity.com/paper/2211.07080/

## Key facts

- Cited by 4 papers in the map (data through 14 Oct 2026).
- Builds on 4 of its 15 references that are in the map.
- First posted on arXiv 14 Nov 2022.

## Builds on (most cited first, 4 of 4)

- [A Robust Predictive Model for Stock Price Prediction Using Deep Learning and Natural Language Processing](https://mlsanity.com/paper/1912.07700/) (2019)
- [A Time Series Analysis-Based Stock Price Prediction Using Machine Learning and Deep Learning Models](https://mlsanity.com/paper/2004.11697/) (2020)
- [Stock Portfolio Optimization Using a Deep Learning LSTM Model](https://mlsanity.com/paper/2111.04709/) (2021)
- [Robust Portfolio Design and Stock Price Prediction Using an Optimized LSTM Model](https://mlsanity.com/paper/2204.01850/) (2022)

## Built on by (most cited first, 4 of 4)

- [A Comparative Analysis of Portfolio Optimization Using Mean-Variance, Hierarchical Risk Parity, and Reinforcement Learning Approaches on the Indian Stock Market](https://mlsanity.com/paper/2305.17523/) (2023)
- [Portfolio Optimization: A Comparative Study](https://mlsanity.com/paper/2307.05048/) (2023)
- [Performance Evaluation of Equal-Weight Portfolio and Optimum Risk Portfolio on Indian Stocks](https://mlsanity.com/paper/2309.13696/) (2023)
- [Exploring Sectoral Profitability in the Indian Stock Market Using Deep Learning](https://mlsanity.com/paper/2407.01572/) (2024)

## Abstract (arXiv)

A pair-trading strategy is an approach that utilizes the fluctuations between prices of a pair of stocks in a short-term time frame, while in the long-term the pair may exhibit a strong association and co-movement pattern. When the prices of the stocks exhibit significant divergence, the shares of the stock that gains in price are sold (a short strategy) while the shares of the other stock whose price falls are bought (a long strategy). This paper presents a cointegration-based approach that identifies stocks listed in the five sectors of the National Stock Exchange (NSE) of India for designing efficient pair-trading portfolios. Based on the stock prices from Jan 1, 2018, to Dec 31, 2020, the cointegrated stocks are identified and the pairs are formed. The pair-trading portfolios are evaluated on their annual returns for the year 2021. The results show that the pairs of stocks from the auto and the realty sectors, in general, yielded the highest returns among the five sectors studied in the work. However, two among the five pairs from the information technology (IT) sector are found to have yielded negative returns.