Pair Research Factory v30

1. Universe

The scan universe is drawn from U.S. large-cap equities grouped by sector and industry. Only U.S. native stocks are included.

2. Pair generation

A pair is allowed only when both stocks belong to the same industry. Cross-industry pairs are excluded by design.

3. Statistical metrics

Correlation
Cointegration p-value
ADF p-value
Hedge ratio
Spread, spread mean, spread standard deviation
Z-score of the current spread
Half-life

4. Direction filter

Only pairs flagged as Reverse are retained. All other pairs are discarded before further processing.

5. Duplicate stock filter

If a stock appears in two or more candidate pairs within the same scan, all pairs containing that stock are removed.

6. PE filter

PE is compared after the signal is generated.
Rule: Long leg PE < Short leg PE.
Negative PE is treated as 0 for comparison.
Missing PE is treated as 0 for comparison.
PE > 200 is kept, compared at face value.
If the Long leg has no PE (N/A), the pair is removed entirely.
If PE comparison fails, the pair stays in the full list, marked PE FAIL, and is excluded from Top 5.

7. Event warnings

Earnings near: highest severity, excluded from Top 5.
Ex-dividend near: warning only, still eligible for Top 5.
Market cap difference > 90%: red warning.
Short leg is a leader: severe warning.
Long leg is a leader: informational note only.

8. Ranking

Two parallel rankings are produced for each scan:

Table A: sorted by 5-day signal count (descending).
Table B: sorted by the four-dimension average (ascending), where the four dimensions are market cap, average volume, PE, and price.

9. Top 5 selection

The Top 5 is drawn from pairs that pass the PE filter and have no earnings-near warning, then ranked by the four-dimension average.

10. Position sizing

Dollar-neutral sizing is computed with a total capital range of $400 – $2,000 per pair. Up to three allocation schemes are shown per pair.

11. Output

Each scan produces a set of files stored under a dated path: CSV, HTML, Markdown, JPG charts, and a JSON snapshot. This website reads the JSON snapshot.

12. Disclaimer

All content on this site is provided for research and informational purposes only. It is not investment advice, and it is not a recommendation to buy or sell any security.

Methodology