First time posting here so I hope I get it right!

I'm an undergraduate in an American University, and am Computer
Science/Math/Finance focused. I'm attempting to create a basic Pairs Trading
portfolio as a project and have found many good resources online that have
pointed me in the right direction.

I have a symbol list of 50 Utility stocks w/ 500k+ ADV. I then compare each
symbol to every other symbol using the Dickey-Fuller test, and then accept a
pair if it passes with 95% confidence. Pretty simple idea.

I created a python script to back-test different entry and exit points, but
the problem, as most of you may have already found -- is that the
co-integration does not significantly hold. The profitability seems to be
around 1-2% over a year period. (Profitable, but not good)

I'm looking to expand this out, does anyone have any suggestions on what I
can add to tighten up the confidence of the cointegration. Is it possible to
add in fundamentals? Are there any good papers that deal with cointegration
between equities (Specifically in the US Equities Market)?

I've posted all my code to: http://g-rock.dreamhosters.com/pairs/
With the hope that it may help someone in the future.


Thanks for any tips,
Brian Giarrocco
bvgiarro@edisto.cofc.edu

	[[alternative HTML version deleted]]

