The National Association of Active Investment Managers (NAAIM) has named Davide Pandini, PhD, winner of the 2026 NAAIM Founders Award, its annual white paper competition. His paper, "Stationary, But Not Profitable? A Critical Look at Pairs Trading," examines whether stationarity and cointegration remain reliable indicators of profitable pairs trading in today's markets.
LITTLETON, Colo., April 27, 2026 /PRNewswire-PRWeb/ -- The National Association of Active Investment Managers (NAAIM) has named Davide Pandini, PhD, CMT, MFTA, CFTe, CSTA, the 2026 winner of its annual white paper competition, the NAAIM Founders Award. Dr. Pandini is a Technical Director in semiconductor technology at STMicroelectronics in Agrate Brianza, Italy, and an award-winning financial analyst and researcher. His paper, titled "Stationary, But Not Profitable? A Critical Look at Pairs Trading," asks whether traditional measures of long-run equilibrium - specifically stationarity and cointegration - remain reliable predictors for successful pairs trading in today's market conditions.
"This research seeks to bridge the gap between theoretical econometrics and practical investing and trading execution in a regime characterized by high volatility clusters and structural shifts," Dr. Pandini explains. In doing so, the study introduces a fully reproducible, end-to-end framework for spread-based trading. "The results present what we call the 'Cointegration Paradox': while cointegration is a standard for risk management, it is neither a sufficient nor a strictly necessary condition for profitability," he says.
Originally developed in the 1980s, pairs trading assumes two stocks with similar trading patterns and returns in the past will exhibit the same relationship or cointegration in future markets. Thus, if prices diverge, traders anticipate future convergence or mean reversion by shorting the overvalued stock and going long the undervalued one. In his research paper, Dr. Pandini asks whether pairs trading is still a valid strategy given more than 40 years of market evolution.
Among the conclusions of the paper is that in-sample cointegration is not a strict prerequisite for out-of-sample profitability. Short-horizon mean-reversion rules can exploit transient, regime-dependent corrections in relative prices without requiring a perfectly stationary spread. The lack of cointegration, however, implies drift risk (non-stationarity); hence, rigorous risk control is essential in contemporary pairs trading, according to Dr. Pandini. His paper also establishes that multi-asset combinations can effectively filter idiosyncratic risk to preserve a stable common stochastic trend.
"A key point the paper makes is its explicit modeling of transaction costs," said NAAIM President Barry Arnold. "Dr. Pandini demonstrates that execution efficiency can be as important as statistical modeling. A modest 10 basis point cost can significantly reduce the Sharpe ratio in high turnover strategies. I also appreciated his discussion of 'drift risk' in commodity-linked pairs, making them less suitable for traditional pairs trading."
Dr. Pandini will present his Founders Award paper at the National Association of Active Investment Managers annual Uncommon Knowledge Conference on Wednesday morning, April 29, 2026, at the Tampa Westin Waterside in Tampa, Florida. For information on the conference, visit www.naaim.org. To download the full paper, visit: https://naaim.org/wp-content/uploads/2026/04/Stationary-But-Not-Profitable-A-Critical-Look-at-Pairs-Trading-2026-Davide-Pandini-PhD.pdf
The NAAIM Founders Award, established in 2009, aims to promote knowledge of active investment management by inviting and publishing research about active strategies and their outcomes. Over the past 17 years, the competition has taken on an international flavor with winners from Australia, Germany and now Italy. Among the competitors in 2026 were submissions from India.
Media Contact
Barry Arnold, National Association of Active Investment Managers, 1 303-979-1280, [email protected], www.naaim.org
SOURCE National Association of Active Investment Managers
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