Advice ahead of a pair trade presentation - HF interview

I've been tasked by a hedge fund as part of the interview process to put together a presentation on a pair trade idea. I've done stock pitches before, but never a pair-trade idea. Beyond the usual stock pitch must-haves like fundamental analysis of the two companies themselves, macro, valuation, etc, is there anything else I should focus on and dedicate slides to for a pair trade?

I've done a Dickey-Fuller test to prove co-integration, and therefore validating it as a possible pair trade. I'll try to present this in an interesting way in a slide to show I understand what makes a pair trade possible. I'll also of course be doing valuation/share price comparisons to show the two stocks have diverged.

Is there anything else a hedge fund PM would expect in a pair-trade presentation that wouldn't typically be in a vanilla stock pitch? HF and stocks are European, if it's of relevance.



What type of hedge fund is it? If it’s a pod don’t do company overview/macro whatever just get to the thesis points and they need to be clear cut (so not just company A is a good business with great fundamentals and B has weaker fundamentals so long A and short B) 

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You don’t need to do this dickey fuller stuff tbh, you don’t need to prove divergence or anything, just that one stock will outperform the other. Both can (and probably will) go up or down depending on the dispersion of the industry, the purpose of a pair trade is to harvest the idio on the names and capture a long/short spread. I.e Stock A goes up more than B or B down more than A and you shorted the right one.

you can include a very brief overview, but pod pitches are not long term business bets, you need to demonstrate you know where the key drivers of the business are heading in the near term for each. Think of it more as an event driven pitch, rather than the super deep industry stuff you might have done for a finance club LO pitch. I’m only going to hold the stock for a few months, I don’t need you to tell me the absolute ins and outs, just what the idea is, how we get paid. If I need more I’ll ask 

and yes, knowing when the thesis will kick in is essential, this is your catalyst path (normally earnings where you think A or an will beat/miss by X EPS)

you pair trade ideally should be in the same vertical, might be easier if I DM you?


second that, and would go further and limit yourself to 5min. Seriously, if you take over 5min to explain it in a simple manner, you’re not dominating the thesis. 5min + remaining for Q&A has always been my go-to, and has always been the go-to with every HF I know.


Man you don’t need to do a hypothesis test for cointegration.

What is your variant perception? When/why will it materialise into the market’s discounted future expectations for the stocks? If it’s for a pod, those are the only two questions you need to answer.

What are the key drivers whereby my perception differs from that of the market? Why does it differ - i.e., what does the market think about those key drivers and why do I think differently? Why is that justified? How can convert thesis that to numbers?

How are those numbers actually going to materialise into the market’s (discounted) expectations for both stock? In other words, give a couple of catalysts.

Your variant perception cannot be “I reject a null of no cointegration”. Anyone with undergrad econometrics/stats knowledge can perform that test. The info to perform such a test is already in the market’s info set and the answer to the question of a cointegrating relationship is black and white (at a given significance level). Think about it logically - there cannot be any alpha in that.


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