Davide Graziano · 2026 · arXiv (Cornell University)
DOI: 10.48550/arxiv.2609.35359 · cited by 0 works (OpenAlex) · open-access PDF
This paper examines whether a cointegration-based pairs trading strategy between PepsiCo and The Coca-Cola Company is statistically robust and economically exploitable. We first test for cointegration and estimate the spread's mean-reversion dynamics over 2013-2018, then hold these statistical parameters fixed and optimise a threshold-based trading strategy in-sample over 2018-2023. Robustness is assessed through transaction-cost and parameter sensitivity tests, walk-forward validation, and Adjusted and Deflated Sharpe Ratios. The strategy is then evaluated out-of-sample from 2023 to the present, including an analysis of time-varying hedge ratios using rolling OLS and a Kalman filter. The results show that weakening mean-reversion dynamics in the spread undermine the effectiveness of the strategy out-of-sample.
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Topics: Sharpe ratio, Econometrics, Cointegration, Robustness (evolution), Economics, Pairs trade
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