Performance of Pairs Trading Strategies Based on Renko and Kagi Charts

Yufei Sun ()
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Yufei Sun: Faculty of Economic Sciences, University of Warsaw

No 2025-20, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper investigates the profitability and robustness of pairs trading strategies based on non-parametric technical chart constructions—Renko and Kagi—across the U.S. and Chinese equity markets. Within a market-neutral, mean-reversion framework, the study examines strategy performance under varying market regimes, including the Global Financial Crisis (GFC) and the COVID-19 period. Using historical data from indices such as the S&P 500 and the CSI series, pairs are selected via statistical patterns in Renko and Kagi charts. Robustness checks consider varying trading horizons, the number of pairs, and transaction costs. Results show that both chart-based strategies generate significant excess returns and exhibit strong Sharpe ratios before costs. While trading frictions reduce profitability, Renko-based strategies remain resilient, especially during crises. The findings highlight that adaptive and non-parametric charting methods can effectively capture transient mispricings and provide viable alternatives for statistical arbitrage in turbulent markets.

Keywords: Pairs trading; Quantitative strategies; Statistical arbitrage; Kagi Chart; Renko Chart; H-Strategy (search for similar items in EconPapers)
JEL-codes: C22 C63 G11 G14 G17 (search for similar items in EconPapers)
Pages: 90 pages
Date: 2025
New Economics Papers: this item is included in nep-fmk and nep-sea
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