Statistical arbitrage is a trading strategy that employs time series methods to identify relative mispricing between securities based on the expected values of these assets. The Pairs Trading, one of the techniques of statistical arbitrage, is a market neutral trading strategy. The main objective of this paper is to investigate the profitability and risks of pairs trading strategy for various stocks. The daily future prices of stocks traded and listed on NSE over 2011–2017 are used on rolling basis to compute the performance based on the selection of pairs through minimizing the sum of squared deviation (distance method) and the selection based on cointegration tests (cointegration method) for identifying stocks suited for pairs trading strategies. The pairs trading strategy is performed in two stages: the formation period and the trading period. The strategy is created by long position in one stock and short position in other stock of the pair identified. To examine the risk of pairs trading and the drivers of returns, the portfolio returns are risk-adjusted using Fama and French (J Financ Econ 33:3–56, 1993) three factor asset pricing model. The study reveals that pairs trading in related stocks is significantly profitable with average annualized profitability of up to 34% including transaction costs. The evidence of pairs trading profits in stock futures supports the view that these profits reflect compensation to arbitrageurs for enforcing the law of one price in similarly related markets to ensure market efficiency. Indian financial markets are maturing and are attracting sizable retail and institutional investments. Advanced applications like the one presented in this study are of significance for the investors and investment consultants so that they can benefit from such trading strategies.

中文翻译：

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印度股票期货市场统计套利机会的风险调整回报

统计套利是一种交易策略，它采用时间序列方法根据这些资产的预期价值来识别证券之间的相对错误定价。配对交易是统计套利技术之一，是一种市场中性交易策略。本文的主要目的是研究各种股票配对交易策略的盈利能力和风险。2011-2017 年在 NSE 交易和上市的股票的每日期货价格在滚动基础上使用通过最小化平方差的总和（距离法）和基于协整检验的选择（协整方法）来识别适合配对交易策略的股票。配对交易策略分两个阶段执行：形成期和交易期。该策略是由一只股票的多头头寸和已识别的另一只股票的空头头寸创建的。为了检查配对交易的风险和回报的驱动因素，投资组合回报使用 Fama 和 French (J Financ Econ 33:3–56, 1993) 三因素资产定价模型进行风险调整。研究表明，相关股票的配对交易利润丰厚，包括交易成本在内的平均年化收益率高达 34%。股票期货配对交易利润的证据支持这样一种观点，即这些利润反映了对套利者在类似相关市场上执行一价定律以确保市场效率的补偿。印度金融市场日趋成熟，吸引了大量零售和机构投资。