Pairs trading is a type of arbitrage investment strategy that buys an underpriced security and simultaneously sells an overpriced security. Since the 1980s, investors have recognized pairs trading as a promising arbitrage strategy that pursues absolute returns rather than relative profits. Thus, individual and institutional traders, as well as hedge fund traders in the financial markets, have an interest in developing a pairs trading strategy. This study proposes pairs trading rules (PTRs) created from a price ratio between securities (i.e., stock index futures) using rough set analysis. The price ratio involves calculating the closing price of one security and dividing it by the closing price of another security and generating Buy or Sell signals according to whether the ratio is increasing or decreasing. In this empirical study, we generate PTRs through rough set analysis applied to various technical indicators derived from the price ratio between KOSPI 200 and S&P 500 index futures. The proposed trading rules for pairs trading indicate high profits in the futures market.

1. Introduction
 2. Research Background
 3. Generation of PTRs
  3.1 Co-integration Analysis between Two Securities
  3.2 Input Variable Creation Using the PR
  3.3 Generation of PTRs Using Rough Set Analysis
 4. Empirical Study
 5. Concluding Remarks
 References

• Young-Min Kim(Dept. Information and Industrial Engineering, Yonsei University) | 김영민
• Jungsu Kim(Business School, Kwangwoon University) | 김정수
• Suk-Jun Lee(Business School, Kwangwoon University) | 이석준 Corresponding Author