Distance Pairs Trading — Nasdaq-100 Backtest
Distance Pairs Trading — Nasdaq-100 looks for Nasdaq-100 stocks that have historically moved together, then tries to profit when their normalized adjusted-price paths temporarily diverge and later reconverge.
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Strategy summary
Distance Pairs Trading — Nasdaq-100 is a relative-value mean-reversion strategy built to pursue reconvergence after unusual stock-pair divergence from the premise that historically similar price paths can temporarily separate, using normalized distance matching within point-in-time Nasdaq-100 constituents.
At each monthly formation date, the strategy sorts those nearest-partner matches from smallest distance to largest distance, removes duplicate unordered pair keys, and selects the first 20 unique pair keys. Those selected pairs are watched for the next 126 trading bars. If a selected pair’s signed normalized spread moves more than two sample standard deviations away from zero, the strategy buys the lagging normalized path and shorts the leading normalized path. Each active pair is sized as a dollar-neutral long/short slot, and pair-leg targets are rolled up to net symbol-level portfolio targets before execution and portfolio accounting.
The signal path uses normalized adjusted Close only. Ordinary cash dividends are not added to the pair-selection, spread, entry, or exit signal. Dividends on actual held long and short positions are handled through the portfolio accounting described on the Methodology page.
What this strategy is not
- Not a cointegration pairs-trading model that estimates regression residuals or tests for a stationary spread.
- Not an unrestricted all-stock-market replication of the original Gatev-Goetzmann-Rouwenhorst CRSP-universe study.
- Not an intraday or high-frequency statistical-arbitrage model; pair formation and signals use daily adjusted-Close paths.
- Instead: it is a constrained Nasdaq-100 distance-pairs adaptation that trades temporary divergences between historically similar adjusted-price paths.
Report summary
| Item | Value |
|---|---|
| Strategy | Distance Pairs Trading — Nasdaq-100 |
| Category | Pairs / Statistical arbitrage |
| Universe | Point-in-time Nasdaq-100 constituents |
| Trade Direction | Market-neutral |
| Free Preview Window | 2021–2025 (5 years); BTS uses the five most recent whole calendar years for free previews. |
| Full Backtest Period | 2011–2025 (15 years); BTS uses the longest supported whole-calendar-year window available under the strategy universe, required instrument history, indicator warm-up, and methodology rules. |
| Window Start Rule | First full calendar year with active strategy results; 2010 is excluded from headline metrics. |
| Starting Capital | $10,000 |
| Primary Benchmark | 0% cash / no-trade baseline |
| Methodology Version | BTS-3377 |
| Publication Date | May 16, 2026 |
| Source / Credit | Evan Gatev, William N. Goetzmann, and K. Geert Rouwenhorst, Pairs Trading: Performance of a Relative-Value Arbitrage Rule; BTS Nasdaq-100 distance-pairs adaptation |
Benchmark summary
The benchmark is a 0% cash / no-trade baseline. It leaves the committed capital unused, so the comparison asks a simple question: did the pairs-trading rules add value after the strategy chose pairs, entered divergences, exited on crossings, and sized dollar-neutral pair slots?
Removing the pairs-trading rules does not leave a natural passive long-equity portfolio. A Nasdaq-100 or Invesco QQQ Trust (QQQ) buy-and-hold line can be useful context, but it adds directional equity exposure that this strategy is not designed to own. The cash benchmark keeps the comparison focused on the pairs-trading process.
For the benchmark-selection framework, see How to Choose the Right Benchmark.
- Primary Benchmark: 0% cash / no-trade baseline.
- Preserves: the same committed-capital framing without adding a separate market-direction thesis.
- Removes: pair selection, spread entry, crossing exit, re-entry, short exposure, and active pair-slot construction.
- Excludes: Nasdaq-100 buy-and-hold beta, equal-weight index exposure, and any static long/short stock basket.
Key metrics: 2021–2025 free preview
- The free preview is a recent-window orientation tool, not the complete evidence set.
- A five-year free-preview window can be useful, but it can also overstate or understate the full historical tradeoff.
- The full report expands the scorecard across the complete report window and adds the path-level interpretation behind the headline numbers.
In this five-year free preview, Nasdaq-100 Distance Pairs Trading remained active and low-volatility, but it still lost capital versus the flat Primary Cash Benchmark. The full report is needed to evaluate whether the late-window partial recovery changes the complete 2011–2025 result.
| Category | Metric | Strategy | Benchmark |
|---|---|---|---|
| Activity | Time in Market | 99.9% | 0.0% |
| Activity | Trades per Year | 417.4 | — |
| Activity | Win Rate | 53.2% | — |
| Risk | Volatility | 4.9% | 0.0% |
| Risk | Max Drawdown | -13.6% | 0.0% |
| Risk | Sharpe Ratio | -0.1 | — |
| Risk | Calmar Ratio | -0.1 | — |
| Result | CAGR | -0.7% | 0.0% |
| Result | Ending Capital | $9,660 | $10,000 |
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