LCI Industries Inc. (LCII:NYSE) vs. Polaris Inc. (PII:NYSE)

September was a good month for the signals generated by the August 2020 Vintage of our Top 30.   As an example pair trade, we want to drill down on a pair that has consistently delivered profitable trades over the last year, that of LCI Industries Inc. (LCII:NYSE) vs. Polaris Inc. (PII:NYSE).  The latest trade called on the pair didn’t disappoint, delivering $578 Net Profit and a 15% return on margin in 4 days.  Here is a detailed trade entry and exit analysis for this example pair trade:

example pair trade

Backtest Results:

In backtesting over the three years prior to 24 August 2020, cointegrated and correlated stock pair LCII/PII delivered 10 closed trades, a 90% win rate, an average net profit per trade of $454, and over $4,500 in total profits:

example pair trade

Actual Trading Result

In actual trading, LCII/PII called an Entry Signal EOD on 1 September 2020 at a -2.74sd. The trade exited on 8 September 2020, three days later at a -0.48sd, delivering a $578 Net Profit and a 15% return on margin! (assumes $10,000/leg trade size and 5:1 CFD margin, illustrative):

example pair trade

PairTrade Finder®’s Top 30 U.S. Equities Pairs & Example Pair Trade Signals

We analyse over 1,800 U.S. equities to find you the best stock pairs for you to trade. We update this analysis on a quarterly basis to ensure these pairs stay fresh and their correlations and cointegrations strong to offer you the highest-probability setups. All pairs must meet strict profitability and robustness measures as follows:

  • USA Exchange-traded (NYSE/NASDAQ/AMEX): > than $2 bln mkt cap (most much larger), > $2 million/day of average daily traded volume($), easy-to-borrow
  • Similar fundamentals: same national market, same sector, usually same industry sub group. Preference for beta-similar, market-cap-similar pairs
  • Backtested with a +/-2.5 standard deviation Entry Stretch, +/-0.8 standard deviation Exit Stretch on the Core Ratio of the pair’s share prices
  • Three-year backtest lookback period, 63 day (one trading quarter) Standard Deviation, Ratio and Stretch lookback settings
  • COINTEGRATION: We use the Augmented Dicky Fuller test for co-integration and select only pairs with a p-value of 0.10 or less over the 3 year period
  • CORRELATION: of minimum 50%, preferably higher. Lower correlation can be tolerated if pair is strongly cointegrated and scores highly on all other criteria
  • Minimum Average Profit per Trade of $300, preferably $400+
  • Compound Annual Growth Rate of Net Profits for each pair preferably in excess of Maximum Drawdown % i.e. positive reward/risk
  • Maximum historic drawdown < 20%, preferably <15% (before leverage)
  • Win Rate at least 70%
  • Maximum Days in Trade of 40 days. This setting represents our time stop. Average days per trade is around 12-15 days

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Happy trading.

Geoff, Paul & The PairTrade Finder® Team

NB: The Top 30 example pair trades in PairTrade Finder® PRO and the trading signals generated therefrom are provided for informational and educational purposes only. They should not be construed as personalised investment advice. It should not be assumed that trading using the parameters demonstrated by the Software will be profitable and will not result in losses. Please see our full Terms & Disclaimer here.

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