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This is very interesting. You probably can create synthetics for a pairs trading strategy however I believe that you need to consider the pros and cons. Pros: 1. You can create a short position if the stock is hard to borrow. 2. You do not need to worry for dividend payments when shorting. Cons; 1. It can be a bit expensive (transactions/commissions) 2. ...


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Becky, in order to get a good 'all around' grip of the concepts that you might encounter in statistical arbitrage, a good book would be the: Statistics and Data Analysis for Financial Engineering (Springer Texts in Statistics) , especially Chapter 9 onward. There you will find all the tools you need for your pairs-trading stat arb, like co-integration, ...


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Becky, I have traded stat arb for years, this is the best book I have read on pairs trading- Andrew Pole - Stat Arb



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