Pair Finder is a mobile trading app to find cointegrated stocks for pair trading. Cointegrated stocks move together in the market. When one goes up, the other goes up. When one goes down, the other goes down. A cointegration test makes sure this price movement is not random. By finding two stocks that are cointegrated, you can bet they will keep a certain distance between their prices. If they diverge, you can short one and buy the other, until they converge again. If they converge too much, you can buy one and short the other, until they diverge again.
Pair Trading is a market-neutral strategy. It doesn't matter if the market goes up or down, it only depends on the two stocks you are pair trading. It is also low risk, because you are hedged. For the money you are long in half the pair, you are short the same amount in the other half, so it takes minimal outlay of cash to enter a pair trade.
The cointegration test uses an augmented Dickey-Fuller (ADF) test to determine cointegration. It tests the residuals after a regression to test for a unit-root and whether the residuals are a stationary process or a random walk.
Features to look for in the future include
- Regression coefficients to determine price relationships
- Pair trading signals sent to your mobile for you to initiate trades
- Portfolio and pair allocation based on available capital.