Market-Neutral Strategy for Portfolio Construction- A Study on Stocks Listed with NSE

Abstract

The mcreasing volatility in stock, commodities and foreign exchange markets compel investors and scholars to look for strategies which would immunize the investors against the unprecedented movement of the markets. This quest led to discovery of several market-neutral investment strategies of ivhich a very popular one is Pairs Trading. It essentially involves taking opposite positions in two highly correlated assets. This study is on identifying pairs of stocks in the Indian markets which are suitable for pairs trading. The method of cointegration, both in long and short run, have been utilized in this study.