The objectives set in this study for an adaptive statistical arbitrage system included the classification of securities, modelling of the mean-reversion characteristic, trade signal generation and finally the performing of a sensitivity analysis of the system. These objectives were achieved and successfully validated against historic market data. The adaptive system was shown to outperform stock index benchmarks in five of the six studied security universes. The adaptive system also outperformed classical pairs trading in most security universes that were examined.
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