University of Isfahan Journal of Asset Management and Financing 2383-1189 5 4 2017 12 22 Comparing Profitability of the Pair Trading Strategy in Different Asset Classes Comparing Profitability of the Pair Trading Strategy in Different Asset Classes 69 88 21195 10.22108/amf.2017.21195 FA Kamran Pakizeh Assistant Prof. of Finance Department, Faculty of Financial Sciences, Kharazmi University Samar Habibi MSc. in Financial Ingineering, Finance Department, Faculty of Financial Sciences, Kharazmi University Journal Article 2016 09 13 Pair trading is known as the most common and one of the oldest statistical arbitrage strategies. Also, it can be considered a Market Neutral strategy. Using different classes of assets including equities of the Tehran Stock Exchange, S&P 500 stocks index as well as commodities market from February 2013 through May 2015, this paper aims to compare performance of different methods of pair trading. These methods consist of the “Minimum Distance”, “Augmented Dickey-Fuller Test and Granger Causality Test” and the “Linear Regression-based method”. Empirical profitability results including a return of  15% for the Minimum Distance method, 1/4% for Augmented Dickey-Fuller Test and Granger Causality Test and 6% for the Linear Regression-based method, are incontrovertible evidences backing the assumption that higher profits are achieved in case of using different classes of assets. Furthermore, according to empirical results of using 15% return and a sharp ratio of 6/5, Minimum Distance method is found to be the best model of applying pairs trading strategy in commodities and capital markets. Pair trading is known as the most common and one of the oldest statistical arbitrage strategies. Also, it can be considered a Market Neutral strategy. Using different classes of assets including equities of the Tehran Stock Exchange, S&P 500 stocks index as well as commodities market from February 2013 through May 2015, this paper aims to compare performance of different methods of pair trading. These methods consist of the “Minimum Distance”, “Augmented Dickey-Fuller Test and Granger Causality Test” and the “Linear Regression-based method”. Empirical profitability results including a return of  15% for the Minimum Distance method, 1/4% for Augmented Dickey-Fuller Test and Granger Causality Test and 6% for the Linear Regression-based method, are incontrovertible evidences backing the assumption that higher profits are achieved in case of using different classes of assets. Furthermore, according to empirical results of using 15% return and a sharp ratio of 6/5, Minimum Distance method is found to be the best model of applying pairs trading strategy in commodities and capital markets. https://amf.ui.ac.ir/article_21195_3cc31c9c3bec76ce398b3882f0ee4431.pdf