PairTrade Finder Review – Is This Software Right For You?

About PairTrade Finder

PairTrade Finder is a software platform designed to help traders find and analyze pair trades. These are market-neutral trades that capitalize on price divergences between two highly correlated stocks.

PairTrade Finder makes it simple to find correlated pairs of stocks to trade and offers data about how historical pair trades would have performed. In our PairTrade Finder review, we’ll help you decide if this software is right for you.

PairTrade Finder Pricing Options

PairTrade Finder costs $527 per year for a single license, which can only be used on a single computer. You can purchase two additional licenses for $159 per year. PairTrade Finder offers a 15-day free trial (credit card required) followed by a 30-day money-back guarantee.

What is Pair Trading?

Pair trading is a market-neutral trading strategy that involves combining long and short trades in two highly correlated stocks. The idea behind pair trading is that if two stocks diverge from their historical correlation, they will likely return to that correlation in the future. The temporary divergence offers an opportunity to trade.

As an example, take two highly correlated stocks. If one stock begins to outperform the other, a trade could buy the underperforming stock and short-sell the outperforming stock. If the stocks return to their historical correlation, one or both trades will generate a profit.

Importantly, pair traders typically look for not only correlation but also cointegration. Correlation measures whether two stocks move in the same direction, while cointegration measures the distance between two stocks’ directional paths over time. Pair traders typically look for cointegration since successful pair trading relies on two stocks’ prices moving in the same direction with similar magnitudes over time.

PairTrade Finder Features

PairTrade Finder does an impressively good job of finding correlated and cointegrated stocks. The software offers an Excel spreadsheet of ticker symbols organized by sub-industry. You can use these symbols to create a group, typically for tickers from a specific sub-industry. Historical price data can be imported from Yahoo! Finance for free or from an Interactive Brokers data feed. 

From there, you can use PairTrade Finder’s backtester to find correlated and cointegrated stocks within the group you created. For each pair of stocks in your group, PairTrade Finder will calculate correlation and cointegration. It will also find historical pair trades and calculate the profit/loss for these trades.

The backtest results are displayed in a spreadsheet-like interface, enabling you to filter based on correlation, cointegration, net profit from trades, and maximum drawdown during trades. Clicking on any pair will bring up a profit and loss chart so you can visualize the historical trades, as well as a price correlation chart so you can see how the prices of the two stocks have moved relative to one another.

If you find pairs that you want to explore further, you can save them to a watchlist. Watchlists offer the same filters as the backtester, so you can backtest many different groups of stocks and then filter your watchlist to find the most favorable pairs to trade. PairTrade Finder also offers a useful quick compare tool that lets you pull up fundamental metrics for any pair of tickers, as well as quick charts that show historical price activity in greater detail.

The other important feature of PairTrade Finder is alerts. You can set up email or audio notifications to be alerted when a pair of stocks in your watchlist begins to diverge in price. You can also view more details about historical trades for pairs you’ve backtested. 

Overall, the process of finding correlated and cointegrated stocks with PairTrade Finder is simple. The platform feels clunky, and the interface is outdated, so setting up watchlists and backtesting groups takes a few minutes. However, the outdated interface doesn’t have a huge impact on PairTrade Finder’s usability once you get to used it.

PairTrade Finder Platform Differentiators

PairTrade Finder is one of the only pair trading search tools available to retail traders. Although clunky and outdated, the software is incredibly simple to use and makes it easy to conduct a basic analysis of correlated and cointegrated stocks. PairTrade Finder doesn’t offer much else in terms of fundamental or technical analysis, but it doesn’t need to since most traders will use this software in conjunction with a comprehensive trading platform.

What Type of Trader is PairTrade Finder Best For?

PairTrade Finder is best for traders who want to adopt a pair trading strategy. This is typically a medium to long-term strategy. It may work for some swing traders, but is generally best suited for active investors who want to trade in all market conditions. Pair trading may be especially useful during bear markets for investors who aren’t comfortable shorting the market without hedging.

PairTrade Finder’s backtester and trading signals are fairly easy to use, even for traders who are new to pair trading. At the same time, the tools’ settings are highly customizable for traders who want more control.

PairTrade Finder isn’t cheap, so traders should ideally have a portfolio of at least $10,000 to get the most out of this software. That said, successful pair trading with a larger portfolio can easily pay for the software’s annual fee.