Copula-based trading of cointegrated cryptocurrency Pairs

Masood Tadi () and Jiří Witzany
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Masood Tadi: Charles University Prague

Financial Innovation, 2025, vol. 11, issue 1, 1-32

Abstract: Abstract This study introduces a novel pairs trading strategy based on copulas for cointegrated pairs of cryptocurrencies. To identify the most suitable pairs and generate trading signals formulated from a reference asset for analyzing the mispricing index, the study employs linear and nonlinear cointegration tests, a correlation coefficient measure, and fits different copula families, respectively. The strategy’s performance is then evaluated by conducting back-testing for various triggers of opening positions, assessing its returns and risks. The findings indicate that the proposed method outperforms previously examined trading strategies of pairs based on cointegration or copulas in terms of profitability and risk-adjusted returns.

Keywords: Statistical arbitrage; Pairs trading; Cointegration; Copulas; Cryptocurrency market (search for similar items in EconPapers)
Date: 2025
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Working Paper: Copula-Based Trading of Cointegrated Cryptocurrency Pairs (2023)
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DOI: 10.1186/s40854-024-00702-7

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