Pairs trading in JS']JSE financial sector

This paper investigates the implementation of pairs trading strategy using correlation analysis and the Engle and Granger cointegration technique. The paper used financial sector traded on Johannesburg Stock Exchange (JSE). These data is for stock market comprising closing prices of option stock for 12 companies. The data was collected daily from 04 January 2010 to 31 December 2015. The findings of cointegration analysis confirmed only eighteen pairs shared a long run relationship. Since there is mean reversion, statistical arbitration strategy was implemented. The implementation of pairs trading to historical volatility revealed several possibilities of trade in the financial sector. Therefore, the investors would profit more from trading the identified pairs of stocks in the financial sector.