Date
19 September 2002Japanese original 26 August
Analyst
H. Tamura+44-20-7521-2831Nomura International plc, London
Global pairs tradingUS/Europe/Japan
• Share price returns are becoming increasingly globalized. We have therefore devised
a global pairs trading strategy using FTSE index constituents’ share price data.
• From a universe of stocks with a FTSE market cap of $4.0 billion or more, pairs of
stocks belonging to the same sector are selected on the basis of their average share
price distance (ie, the sum of the squared deviations between the normalized share
prices). Trading starts when the relative share price is 2σ or more away from its mean
and the expected return is 15% or more. The problem with pairs trading is that even if the
prices of the two shares in question have moved together in the past, if outside observers’
views on the two companies’ fundamentals begin to diverge, with one being seen as a
“winner” and one as a “loser”, their relative share prices may never return to what they
were before. We have attempted to reduce this risk by using I/B/E/S consensus ratings
to verify whether or not analysts’ views are in accordance with our trading position.
• In the simulation, the average return on pairs closed during the out-sample period
was 12.9%, with an average investment period per pair of 43 days. The out-sample
simulation also shows that screening on the basis of analyst ratings directs the strategy
towards one of low risk/high return.
• All the pairs trades in our simulations involve stocks listed in countries where there is
a stock loan market. After taking conservative estimates of all costs—such as stock loan
costs and market impact—into account, we predict an average return of 7.0% for each
pair (29.7% on an annualized basis) after 65 days.
Global Quantitative Research
Source: Nomura
Sha
re p
rice
Share prices movetogether
Share prices diverge (open position)(1) Relative share price deviation of2σ or more;(2) expected return of 15% or more;(3) consensus ratings in accordancewith position
Time
Divergence disappears (close position)(1) Relative share price deviation of 0σ ;
or (2) consensus rating for stock thatwas bought more than one point lower
than that of stock that was sold
This is an edited and updated versionof the original Japanese report.
Please read the importantdisclosure on the last page ofthis report.
J02-378
Nomura Quantitative Research
Global pairs trading2
Contents
The globalization of share price returns ......................................................... 3
Global pair construction and simulation ......................................................... 5
Results for individual pairs ............................................................................. 15
Pairs trading in practice .................................................................................. 21
Nomura Quantitative Research
Global pairs trading 3
The globalization of share price returnsShare price returns are becoming increasingly globalized. What we mean by this is that
returns on stocks are increasingly affected more by global developments in the sector to
which they belong than by developments in their home country. Exhibit 1 shows how the
value of the country factor has fallen while the value of the sector factor has risen over the
past few years (we will explain later how we calculate these values). In other words, the
significance of the information regarding the country to which a particular company belongs
has decreased, while the significance of the information regarding the kind of business the
company carries out has increased.
Up to now, pairs trades have tended to be based on pairs of stocks listed in the same
country, but we believe that this is no longer necessary.
The country factor versusthe sector factor—globalization continues
Let us now explain how the country factor and the sector factor are calculated.
First of all, the following regression analysis is carried out in order to investigate the impact
on share price return of both the country and the sector to which the company in question
belongs (see Note 1).
How the country factorand the sector factor arecalculated
rt = α + βcountryrtcountry + β sector rt
sector + εt
rt = monthly stock return
rtcountry = country index return
rtsector = sector index return
1. The country factor and the sector factor
(%)
35
30
25
20
15
10
5
093/1 ~ 95/12 96/1 ~ 98/12 99/1 ~ 01/12
Sector
Country
Note: See Exhibit 2 for details of how the values of the two factors are calculated.Source: Nomura
Note 1: The calculation method used here is extremely simple. For an example of a more complicatedmethod, please refer to Suwabe (2001), to which the Securities Analysts Journal (Japan) awarded itsprize for the best paper in 2001.
Nomura Quantitative Research
Global pairs trading4
In this calculation, rcountry is the return for the country to which the stock belongs, while rsector
is the global return for the sector to which the stock belongs. For example, in the case of
IBM, dependent variable r is the share price return on IBM, rcountry is the return on all US
stocks and rsector is the return on IT hardware companies around the world.
This regression analysis gives coefficients from which the value of the country factor and
the sector factor for individual stocks can be calculated using the following method.
Exhibit 2 shows the conditions applied to our analysis, including the stipulation that all
coefficients must be positive. Exhibit 1 shows the results of our analysis for all the stocks in
the universe, on a market cap weighted average basis.
Attcountry = Var(βcountryrtcountry)
Attsector = Var(βsectorrtsector)
Var(rt)
Var(rt)
2. Details of our regression analysis
Source: Nomura
Universe
Sector classification
Period of regressionanalysis
Dependent variable
Independent variables
Restrictions
Calculating our overallvalues
Key points
FTSE World (Australia, Austria, Belgium/Luxembourg, Brazil, Canada,Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland,Israel, Italy, Japan, South Korea, Mexico, Holland, New Zealand,Norway, Portugal, Singapore, South America, Spain, Sweden,Switzerland, Taiwan, UK, America)
FTSE 36 sectors
(1) January 1993~December 1995 (36 months)(2) January 1996~December 1998 (36 months)(3) January 1999~December 2001 (36 months)
Monthly share price return (in US dollars, including dividends)
Index of country to which stock in question belongs (in US dollars,including dividends)Index of sector to which stock in question belongs (in US dollars,including dividends)
Each coefficient must have a positive value
The market cap weighted averages of the coefficients for each stockare calculated.
1. Because market cap weighted averages are used to calculate boththe independent variables and the overall values, the figures areparticularly sensitive to large-cap stocks. As large-cap stocks accountfor a substantial proportion of both sector and country indexes andthe value of the factors for these stocks tends to be high, the overallvalues also tend to be high.2. The values vary according to what form of sector classification isused. The value of the sector factor automatically increases if a moredetailed sector classification system is used. As a result, the results ofour analysis must be regarded as showing the general trend ratherthan as absolute values.
Nomura Quantitative Research
Global pairs trading 5
Global pair construction and simulationPairs trading—ie, a long-short strategy—has been around for some time, and is still a
highly popular form of trading. As Exhibit 3 shows, pairs trading basically involves: (1)
selecting a pair of stocks whose prices tend to move together; (2) assuming that any
temporary deviation in their share prices relative to each other will disappear; and (3)
selling the overvalued stock and buying the undervalued stock.
There are very few academic papers on pairs trading. One paper on the subject, published
by Gatev, Goetzmann, and Rouwenhorst in 1999, considers whether pairs trading is effec-
tive.
The authors of this paper looked at daily share price data for all US stocks (with no restric-
tions regarding liquidity, etc) from 1962 to 1997. They selected pairs of stocks belonging to
the same S&P sector (utilities, transportation, financial, industrials) for which the sum of
the squared deviations between the two normalized price series (over 24 months) was
small. Over the next six months, they put positions on pairs of stocks with a relative share
price deviation of 2σ or more and closed them when the relative share price deviation
passed the 0σ level (see Note 2). The top 20 pairs—the 20 pairs with the smallest share
price distance—performed the best with an average return of 6% (or 12% on an annualized
basis). The return was slightly lower, at 4% (or 8% on an annualized basis), when tradability
was taken into account—ie, when they waited one day after the appearance of the trade
signals.
They then questioned whether the performance of pairs trades was different from a simple
return reversal effect. Completely disregarding share price distance, they constructed pairs
of stocks in the same sector with differences in past performance, and proved that the
performance of these pairs was significantly different from the performance achieved in
normal pairs trading.
Academic discussion~theeffect of pair trading is notsimply a reversal effect
3. How pairs trading worksS
hare
pric
e
Share prices movetogether
Stock A
Stock B
Share prices diverge(sell A, buy B)
Divergence disappears andshare prices move together again
(close position)
Time
Source: Nomura
Note 2: If the pairs were open for more than 6 months, they took the return at the point at which the pairshad been open for exactly 6 months.
Nomura Quantitative Research
Global pairs trading6
On the basis of this quantitative analysis, the authors claimed that (1) pairs trading pro-
duces positive returns; and (2) the effect of pairs trading is not simply a return reversal
effect.
The universe for the purposes of this report is the FTSE World index. As we have already
said, share price returns are becoming increasingly globalized, so no country-related re-
strictions were imposed. (see Note 3) Exhibit 4 shows the process by which pairs were
constructed. Pairs were selected for which the sum of the squared deviations between their
normalized share prices was small, and where both stocks came from the same FTSE
subsector (our calculations are all in the local currency).
Pairs were constructedfrom a universe of theFTSE World index
Note 3: In fact, however, more than one third of the pairs are of stocks from the same country.
4. The process of constructing global pairs
1861 stocks in the FTSE World index
775 stocks (included in the FTSE World index) with a FTSEmarket cap of $4 billion or more (after free float adjustment)
Daily stock update process(pairs are reviewed every month)
Note: All analysis is carried out on the basis of the local currency of the stocks in question.Source: Nomura
In-sample period (January 1999~December 2001)
Calculation of the sum of the squared deviations between the normalizedshare prices for around 6,000 pairs
Selection of around 500 pairs with the smallest sum of squared deviations
Performance simulation(performance up to July 2002 of pairs opened between 1999 and 2001)
Out-sample period (January~July 2002)
Performance simulation(using the same pairs as those in the in-sample period)
Nomura Quantitative Research
Global pairs trading 7
Opening a position, thetiming of closing aposition, expected returnsand rating checks
Exhibit 5 shows the conditions for opening and closing a pairs trade position. There are two
points we would like to make:
1. Including the expected return in the conditions for opening the position: The expected
return is the return that would be achieved at the moment the relative share price deviation
returned from its current level to 0σ. If relative share price deviation is the only factor taken
into account, even if the trade is successful and the position is closed out, the return may be
so low as to fail to cover trading costs. It is therefore important to check the expected return
before embarking on a trade.
Note: *The expected return is the return realized at the moment when the deviation returns from itscurrent level to 0σ. **Exhibit 16 shows our estimates of costs.Source: Nomura
Sha
re p
rice
Share prices movetogether
Share prices diverge (open position)(1) Relative share price deviation of2σ or more;(2) expected return* of 15% or more;(3) consensus ratings in line withposition (ie, a higher rating for thestock to be bought than the stock tobe sold)
Time
Divergence disappears (close position)(1) relative share price deviation of 0σ; or(2) consensus rating for stock that wasbought more than one point lower than
that of stock that was sold
5. Simulation conditions
Conditions for opening apairs trade position
Share prices whenposition is opened
Conditions for closingthe position
Share prices whenposition is closed
Calculation of return
Costs**
Relative share price deviation of 2σ or more, expected return* of15% or more, consensus ratings in line with position (ie, a higherrating for the stock to be bought than the stock to be sold)
The position is opened at the closing prices on the day when thesignals appeared.
The relative share price deviation goes below 0σ, or theconsensus rating for the stock that was bought is more than onepoint lower than the consensus rating for the stock that was sold
The position is closed at the closing prices on the day when thesignals appeared.
No leverage: sum of the return on the long and short positions
It is assumed that both forex hedging costs and the market impactare 0. Identical dividends on both stocks in the pair are alsoassumed.
Nomura Quantitative Research
Global pairs trading8
An example of a pairstrade
Note 4: Because moving averages are used for the relative share price deviation figures, even if therelative share prices do not return to their original level, over a long period of time the deviation willprobably become 0σ.
Note 5: We did not check the fundamentals of these two companies, and looked at the performance ofthe pair constructed on the basis of relative share price deviation alone.
Note 6: When, as in the case of this pair, there is a substantial time difference between the markets inwhich the two stocks are listed, it is impossible to carry out the same investment activities in practiceas those in the simulation. Therefore, for reference purposes, the simulation was also run on the basisof the closing prices on the day after the day when the signals appeared, for both opening and closingtrades.
6. A typical example of a failed pairs trade
Sha
re p
rice
Share prices movetogether
Stock A
Stock B
Share prices diverge(sell A, buy B)
Time
Source: Nomura
Market consensus changes (stockA is regarded as a winner, whilestock B is regarded as a loser)
Deviation does notdisappear, losses increase
2. Checking the consensus rating (5 I/B/E/S ratings)
This is in order to prevent the situation where the prices of the two stocks used to move in
line with one another, but there is then a change in view regarding the fundamentals of the
two companies and one comes to be seen as a “winner” while the other comes to be seen
as a “loser”, so the losses will always increase. (Exhibit 6) It is assumed that analysts’
ratings take into account information on views regarding companies’ fundamentals—pairs
trades are therefore only embarked on when the rating of the stock to be bought is better
than the rating of the stock to be sold.
The conditions are therefore a relative share price deviation of 2σ or more, an expected
return of 15% or more, and a higher consensus rating for the long stock than the short
stock. Positions are closed when the relative share price deviation returns to 0σ (see Note
4) or when the consensus rating for the long stock is more than one point lower than the
consensus rating for the short stock.
Let us now look at an example of a simulated pairs trade. Exhibit 7 shows the example of
Eisai [4523] and US company Pharmacia. (see Note 5) This pair was constructed on the
basis of share price data for the three years from January 1999 to December 2001. On the
basis of the two companies’ closing prices on 21 March 2001, the divergence was 3.52σ,
the expected return was 25%, and the consensus ratings were in accordance with a pairs
trading position. A pairs trading position was therefore opened, and closed when the rela-
tive share price divergence turned negative on 12 April. The return over the period was
22.9%. (see Note 6)
Nomura Quantitative Research
Global pairs trading 9
1 4 4 4 3 2 3 3 3 1 3 3 3 4 1 2 2 2 2 3 3 3 4 3 2 2 4 4 7 7 7 6
0
5
1
1
2
2
3
3
4
7. Eisai [4523] and US Pharmacia
Source: Nomura
(US$)70
60
50
40
30
20
10
0
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
(¥)
99/1
/1
99/2
/12
99/3
/26
99/5
/7
99/6
/18
99/7
/30
99/9
/10
99/1
0/22
99/1
2/3
00/1
/14
00/2
/25
00/4
/7
00/5
/19
00/6
/30
00/8
/11
00/9
/22
00/1
1/3
00/1
2/15
01/1
/26
01/3
/9
01/4
/20
01/6
/1
01/7
/13
01/8
/24
01/1
0/5
01/1
1/16
01/1
2/31
02/2
/12
02/3
/26
02/5
/7
02/6
/18
02/7
/30
99/1
/1
99/2
/19
99/4
/9
99/5
/28
99/7
/16
99/9
/3
99/1
0/22
99/1
2/10
00/1
/28
00/3
/17
00/5
/5
00/6
/23
00/8
/11
00/9
/29
00/1
1/17
01/1
/5
01/2
/23
01/4
/13
01/6
/1
01/7
/20
01/9
/7
01/1
0/26
01/1
2/14
02/2
/5
02/3
/26
02/5
/14
02/7
/2
6307200 Eisai
2571883 Pharmacia
Begin (long Pharmacia, short Eisai) on 01/3/21σ = 3.52
Expected return = 25.21%
End on 01/4/12σ = 0.03
Actual return = 22.93%
BEGIN 99/5/24 2.34 17.23END 99/11/04 -0.07 -7.19BEGIN 00/4/11 -2.08 24.12END 00/4/21 0.85 35.69BEGIN 01/1/3 2.47 19.01END 01/1/12 -1.07 22.99BEGIN 01/3/21 3.52 25.21END 01/4/12 -0.03 22.93BEGIN 01/8/29 2.48 17.06END 02/3/12 -0.04 -2.83
Deviation
Date σσσσσ Expected Actualreturn (%) return (%)
4
3
2
1
0
-1
-2
-3
-4
σ
Nomura Quantitative Research
Global pairs trading10
The expected return is ofkey importance
In- and out-sample results
The average performanceof closed pairs is 12%
The average return isaround 10%, includingopen positions
Note 7: There is a long “cooling down period” to make it possible to see the performance of pairsopened just before the end of the in-sample period.
Let us now look at our in-sample and out-sample results. In the case of pairs trading, it is
extremely important to know what level of in-sample information is included in the results of
the investigation. In our simulation, January 1999 to December 2001 is the in-sample
period. Pairs are constructed entirely from quantitative information based on the share
price data for this period. The simulation is then run for the in-sample period of January
1999 to December 2001, and the performance of pairs for which signals to open the trade
appeared during this period and signals to close the trade appeared between the end of
December 2001 and the end of July 2002 is calculated. (see Note 7) Our in-sample period
simulation can thus be said to show the potential for profit from pairs trading if it were
possible the predict the degree of share price correlation perfectly accurately.
Our out-sample simulation is from January to July 2002. Pairs were constructed on the
basis of the data for 1999-2001 (the in-sample period) alone. The out-sample simulation
thus shows the extent to which performance can be predicted, and the model can with-
stand changing circumstances.
Exhibit 8 shows the results of our simulations. Let us first look at the average return. In
Condition 3 (ie, deviation of 2σ or more, expected return of 15% or more, plus rating check),
the average return is high, at 12.14% for the in-sample period and 12.88% for the out-
sample period. However, we must not forget that this is based on the assumption that the
trades are executed at the closing price on the day in question. This is difficult to achieve in
practice. Condition 4 (ie, next day trading) assumes that the trades are carried out at the
closing price on the day following the day on which the signals appeared. This is closer to
actual trading than the scenario in Condition 3. Condition 4 produces a return that is 1
percentage point or more lower than that produced by Condition 3, but it is still extremely
attractive.
However, we must not forget that, generally speaking, a closed pair is a successful pair, so
the average performance is bound to be high. This means that it is necessary to evaluate
the performance after also taking into account valuation losses and gains on pairs that are
still open. Exhibit 9 shows the average gains or losses for different lengths of time, based
on the in-sample period. For example, the average return after 65 days of 10.83% is the
average of both the performance of pairs closed by day 65 and the valuation gains or
losses on pairs still open on day 65. Similar calculations were not carried out for the out-
sample period because of the relatively short length of time involved, but the average
valuation losses on open pairs on the last day of the simulation gave a return of –2.44%.
(Exhibit 8) The performance during the out-sample period was therefore around 10% after
65 days, more or less the same as the performance during the in-sample period.
Exhibit 8 also shows that the expected return is of key importance in terms of improving
performance. Because a relatively high expected return was set as one of the necessary
conditions for opening a pairs trade, the number of pairs opened was reduced but the
return was increased. As we have already said, the performance is better when a pairs
trade is opened when there is potential for a profit that will be sufficient to offset the trading
costs.
Nomura Quantitative Research
Global pairs trading 11
Rating screening iseffective
Rating checks produced an effect in our out-sample simulation—in other words, checking
that the consensus rating was better for the stock that is bought than that for the stock that
is sold had a positive effect. In the in-sample period, however, the average return/standard
deviation did not improve, and there was no effect. This is because, in the in-sample
simulation, pairs were selected on the basis that their relative share prices would not
diverge very much during the period (ie, they would not separate into winners and losers),
making substantial losses unlikely.
(1) Deviation of 2σ or 3780 8.41 7.31 1.15 46 38 553 7.39 5.84 1.26 42 34 more
(2) + expected return 1988 11.94 7.86 1.52 51 36 197 10.67 8.14 1.31 50 37of 15% or more
(3) + I/B/E/S rating 1030 12.14 8.13 1.49 51 36 92 12.88 6.98 1.84 43 33in line with position
(4) + one day sleep 1025 10.83 8.62 1.26 50 36 90 11.19 7.77 1.44 42 34
8. Performance summary
Note: Average and standard deviation figures are calculated for closed pairs only. Costs are not included (see Note 8). Condition (1) =position is opened when relative share price deviation is 2σ or more. Condition (2) = position is opened when relative share pricedeviation is 2σ or more and the expected return is 15% or more. Condition (3) = position is opened when relative share price deviationis 2σ or more, the expected return is 15% or more, and the rating check is OK. Condition (4) = same as (3), but performance is calculatedon the basis of the closing prices on the following day.Source: Nomura
00
00
00
00
00
00
00
00
Risk versus return of closed pairs (out-sample)
14
12
10
8
6
4
2
00 1 2 3 4 5 6 7 8 9
Standard deviation (%)
(1)
(4)
(3)
(2)
Note 8: Exhibit 16 shows our estimates of performance after taking costs into consideration.
In-sample (99-01) Out-sample (02/1-7)
No.of
pairs
Averagereturn(%)
Standarddeviation
(%)
Averagereturn/
standarddeviation
(%)
Averageholdingperiod(days)
Standarddeviationof holding
period(days)
No.of
pairs
Averagereturn(%)
Standarddeviation
(%)
Averagereturn/
standarddeviation
(%)
Averageholdingperiod(days)
Standarddeviationof holding
period(days)
Performance of open positions on31 July 2002 (3)
142 -2.44 31
Condition
Nomura Quantitative Research
Global pairs trading12
0
0
0
0
0
0
0
20 days 35 days 50 days 65 days
9. Total of open and closed positions—Condition (3)
20 days 35 days 50 days 65 daysNo. of samples Average Probability Average Probability Average Probability Average Probability
return (%) of positive return (%) of positive return (%) of positive return (%) of positiveaverage return average return average return average return
1032 5.86 0.73 8.04 0.78 9.47 0.81 10.83 0.85
Average return (%)
12
10
8
6
4
2
020 days 35 days 50 days 65 days
Note: The figures are based on Condition (3) and the in-sample period (1999~2001). The average return is the average of the return onpairs that were closed during the period in question and the performance (based on valuations gains or losses) of pairs that were stillopen at the end of the period.Source: Nomura
10. Number of open pairs during the in-sample period
# of open pairs
0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0
120
100
80
60
40
20
099/1 3 5 7 9 11 00/1 3 5 7 9 11 01/1 3 5 7 9 11 02/1 3 5 7
Note: The number of pairs drops rapidly in 2002 because this is the cooling down period when no new pairs are opened.Source: Nomura
No new pairs opened
Number of open pairs at the end ofeach month during the in-sample
period (1999~2001)
Nomura Quantitative Research
Global pairs trading 13
Performance by countryand by sector~there aremany pairs in the bankingand electric power sectors
Let us now look at the distribution of pairs by country. The top section of Exhibit 11 shows
that there are a large number of pairs made up of US companies. This is not surprising in
view of the high index weighting of the US (around 55%). As far as countries with an
effective sample size are concerned, there are no substantial differences from country to
country in terms of average return. It appears that the performance of pairs made up of
Japanese companies is a little better than the average.
Let us now look at the average return for each sector. First of all, there is a clear bias
towards certain sectors in terms of the pairs chosen. There are many pairs in the banking
and electric power sectors. Since no sector diversification was carried out in the pair selec-
tion process, this suggests that stocks within these sectors tend to move relatively closely
together.
Interestingly, pairs made up of stocks in different currencies performed well, although
these spreads may disappear once currency hedging costs are taken into account. How-
ever, it may also be the case that the market is more inefficient on a cross-country basis,
and investors can take advantage of this by carrying out cross-country pairs trades.
Nomura Quantitative Research
Global pairs trading14
Different currency 698 12.53 8.19 1.53 47.23 34.27Same currency 332 11.32 7.95 1.42 58.24 38.64
CountryAUS Australia 14 11.65 5.16 2.26 55.36 32.70CAN Canada 9 9.59 6.53 1.47 58.44 15.99ESP Spain 4 13.54 6.25 2.17 44.50 18.62FRA France 2 16.59 3.90 4.26 42.00 10.00GBR UK 16 10.60 11.90 0.89 67.25 58.73ITA Italy 1 2.10 NA 0.89 72.00 NAJPN Japan 18 17.45 6.41 2.72 37.44 24.22SGP Singapore 2 14.03 1.62 8.66 31.00 7.00SWE Sweden 1 12.65 NA 8.66 57.00 NAUSA USA 232 10.81 7.87 1.37 60.60 39.64
Sector4 Mining 6 13.14 5.11 2.57 48.50 24.757 Oil & Gas 29 10.14 8.60 1.18 55.52 44.2011 Chemicals 16 14.08 7.74 1.82 44.94 34.6513 Construction & Building Materials 7 12.23 7.72 1.58 43.43 28.6615 Forestry & Paper 2 10.97 1.75 6.28 42.00 1.0024 Diversified Industrials 3 8.70 7.96 1.09 70.00 43.8525 Electronic & Electrical Equipment 11 21.57 5.22 4.13 22.18 12.5826 Engineering & Machinery 5 13.18 4.87 2.71 61.20 24.0231 Automobiles & Parts 3 8.45 5.38 1.57 61.33 11.5941 Beverages 2 21.24 0.46 46.67 22.50 17.5043 Food Producers & Processors 46 13.53 5.16 2.62 46.93 26.3144 Health 27 16.52 7.43 2.22 39.41 23.9647 Personal Care & Household Products 3 17.79 4.50 3.95 25.00 7.4848 Pharmaceuticals & Biotechnology 52 12.00 11.44 1.05 50.38 35.3149 Tobacco 4 17.03 6.72 2.53 39.00 20.7052 General Retailers 3 11.27 7.76 1.45 65.67 29.2753 Leisure, Entertainment & Hotels 16 10.17 12.31 0.83 64.69 54.3054 Media & Photography 13 10.57 6.33 1.67 54.77 28.1958 Support Services 7 6.10 11.46 0.53 79.00 68.3959 Transport 8 13.37 7.97 1.68 44.00 35.0363 Food & Drug Retailers 12 14.04 8.64 1.62 46.83 32.3667 Telecommunication Services 16 10.07 7.88 1.28 61.38 36.8072 Electricity 203 11.00 8.12 1.35 54.54 38.2573 Gas Distribution 17 14.07 4.76 2.96 37.06 19.2481 Banks 449 12.08 6.98 1.73 50.87 35.7983 Insurance 15 12.86 7.75 1.66 53.33 32.1784 Life Assurance 26 10.09 15.81 0.64 50.65 38.4386 Real Estate 4 15.76 2.28 6.92 42.75 11.7687 Speciality & Other Finance 20 14.27 7.04 2.03 37.80 27.1893 Information Technology Hardware 5 15.01 5.83 2.58 49.80 30.70
11. Summary by country and sector (for the in-sample period)
ccy No. of companies in pairs Weight (%)
AUS 11 3.99BEL 3 1.09CAN 15 5.43CHE 9 3.26DEU 6 2.17DNK 2 0.72ESP 7 2.54FIN 1 0.36FRA 14 5.07GBR 33 11.96GRC 1 0.36HKG 4 1.45ITA 7 2.54JPN 22 7.97NLD 8 2.90NOR 1 0.36PRT 1 0.36SGP 2 0.72SWE 5 1.81USA 121 43.84
Total 276 100.00
Source: Nomura
Averagereturn(%)
Standarddeviation
(%)
Averagereturn/
standarddeviation
Averageholdingperiod(days)
Standarddeviation of
holdingperiod(days)
Numberof pairstraded
Nomura Quantitative Research
Global pairs trading 15
The performance ofindividual pairs
Before screening 424 12.14 51 92 12.88 43 142 -2.44 31After screening 299 13.05 47 56 13.32 40 92 -0.79 26
Source: Nomura
12. Performance before and after screening
Pairs opened during out-sample period that were still
open at the end of July
Numberof pairs
Averagereturn(%)
Averageholdingperiod(days)
Averageholdingperiod(days)
Numberof pairs
Averagereturn(%)
Averageholdingperiod(days)
Numberof pairs
Averagereturn(%)
In-sample period (99-01) Out sample period (02/1-7)
Results for individual pairsTo simplify matters, the pairs are screened on the basis of the results of the in-sample
simulation, looking only for pairs that produced results during the in-sample period. The
conditions are:
1. The pair must have been opened at least twice.
2. The average realized return must be positive.
3. The pair must be held for no more than 90 days before being closed.
As Exhibit 12 shows, this screening on the basis of the results of the in-sample simulation
resulted in a slightly better performance during the out-sample period.
Nomura Quantitative Research
Global pairs trading16
13.
Th
e re
sult
s o
f o
ur
sim
ula
tio
n f
or
ind
ivid
ual
pai
rs (
1)
60
1
3.32
4
0-0
.79
26
FTSE
sec
tor
Stoc
k A
Stoc
k B
99-0
1 (in
-sam
ple)
02 (
out-
sam
ple)
4M
inin
g61
4469
0BH
P Bi
lliton
AUS
6954
985
WM
CAU
S3
15.7
446
4M
inin
g62
2010
3R
io T
into
Ltd
.AU
S69
5498
5W
MC
AUS
213
.50
357
Oil &
Gas
2023
748
Amer
ada
Hes
s C
orp
USA
2655
408
Occ
iden
tal P
etro
leum
USA
210
.65
537
Oil &
Gas
2249
629
Keys
pan
Cor
pora
tion
USA
8762
89BG
Gro
upG
BR3
14.7
432
118
.15
357
Oil &
Gas
2326
618
Exxo
n M
obil
Cor
pUS
A29
1427
3U
noca
lUS
A2
4.80
617
Oil &
Gas
2326
618
Exxo
n M
obil
Cor
pUS
A71
4505
6En
te N
z In
droc
arbu
riIT
A3
10.2
546
7O
il & G
as24
5424
1Im
peria
l Oil
CAN
8034
14Sh
ell T
rnsp
t & T
r Co
GBR
214
.96
371
7.99
137
Oil &
Gas
2454
241
Impe
rial O
ilC
AN28
0128
9C
ON
OC
OUS
A2
14.1
744
7O
il & G
as24
5424
1Im
peria
l Oil
CAN
2861
142
Sunc
or E
nerg
yC
AN2
19.5
939
7O
il & G
as24
5424
1Im
peria
l Oil
CAN
5202
704
Roy
al D
utch
Pet
roN
LD2
15.5
337
15.
1713
7O
il & G
as24
6614
9En
brid
geC
AN87
6289
BG G
roup
GBR
317
.54
227
Oil &
Gas
4645
805
Nor
sk H
ydro
NO
R79
8059
BPG
BR2
14.2
933
7O
il & G
as52
0270
4R
oyal
Dut
ch P
etro
NLD
4645
805
Nor
sk H
ydro
NO
R2
16.2
211
11C
hem
icals
1081
20BO
C G
roup
GBR
2278
719
Dow
Che
mic
alUS
A4
13.1
736
17.
7486
11C
hem
icals
1081
20BO
C G
roup
GBR
2746
829
Roh
m &
Haa
sUS
A3
13.4
654
11C
hem
icals
2278
719
Dow
Che
mic
alUS
A27
4682
9R
ohm
& H
aas
USA
218
.23
281
2.00
9211
Che
mica
ls54
5831
4Ak
zo N
obel
NLD
5069
211
Baye
r AG
DEU
39.
9658
11C
hem
icals
6858
560
Sum
itom
o C
hem
ical
JPN
5069
211
Baye
r AG
DEU
222
.28
2413
Con
stru
ctio
n &
Build
ing
Mat
eria
ls41
8224
9C
RH
IRL
7380
482
St G
obai
n (C
ie D
e)FR
A2
14.0
829
17.
254
13C
onst
ruct
ion
& Bu
ildin
g M
ater
ials
4502
706
Lafa
rge
FRA
4182
249
CR
HIR
L2
7.33
6613
Con
stru
ctio
n &
Build
ing
Mat
eria
ls45
0270
6La
farg
eFR
A73
8048
2St
Gob
ain
(Cie
De)
FRA
216
.59
4224
Div
ersi
fied
Indu
stria
ls48
3410
8Sc
hnei
der E
lect
ricFR
A23
8049
8G
ener
al E
lect
ricUS
A5
21.0
021
15.
7067
24D
iver
sifie
d In
dust
rials
7118
047
Suez
FRA
4942
904
E.O
ND
EU3
8.70
7025
Elec
troni
c &
Elec
trica
l Equ
ipm
ent
6356
934
Fanu
cJP
N64
9099
5Ke
yenc
e C
orp
JPN
622
.05
2326
Engi
neer
ing
& M
achi
nery
2109
723
Bom
bard
ier B
CAN
2250
870
Dan
aher
Cor
pUS
A2
14.2
466
26En
gine
erin
g &
Mac
hine
ry21
8020
1C
ater
pilla
rUS
A28
3116
7In
gers
oll-R
and
USA
312
.47
5831
Auto
mob
iles
& Pa
rts23
6748
0G
enui
ne P
arts
USA
2554
475
Mag
na In
tern
atl A
CAN
38.
4561
41Be
vera
ges
4682
329
Pern
od R
icar
dFR
A72
9457
Allie
d D
omec
qG
BR2
21.2
423
43Fo
od P
rodu
cers
& P
roce
ssor
s57
4873
Uni
leve
rG
BR20
4731
7Ar
cher
Dan
iels
Mid
.US
A3
18.0
636
112
.25
6243
Food
Pro
duce
rs &
Pro
cess
ors
5748
73U
nile
ver
GBR
2215
460
Con
agra
Foo
dsUS
A4
11.2
268
110
.35
643
Food
Pro
duce
rs &
Pro
cess
ors
5748
73U
nile
ver
GBR
2217
109
Sara
Lee
Cor
pUS
A5
15.7
440
111
.00
3943
Food
Pro
duce
rs &
Pro
cess
ors
5748
73U
nile
ver
GBR
2419
240
Hei
nz (H
J)
USA
313
.76
5043
Food
Pro
duce
rs &
Pro
cess
ors
6107
00C
adbu
ry S
chw
eppe
sG
BR24
2280
6H
ersh
ey F
oods
Cor
pUS
A3
10.6
348
14.
775
43Fo
od P
rodu
cers
& P
roce
ssor
s22
1546
0C
onag
ra F
oods
USA
2217
109
Sara
Lee
Cor
pUS
A4
15.4
642
1-0
.02
2443
Food
Pro
duce
rs &
Pro
cess
ors
2215
460
Con
agra
Foo
dsUS
A24
1924
0H
einz
(H J
)US
A3
17.4
725
15.
4516
43Fo
od P
rodu
cers
& P
roce
ssor
s23
6702
6G
ener
al M
illsUS
A29
8360
4W
rigle
y (W
m) J
rUS
A2
12.4
247
211
.97
3843
Food
Pro
duce
rs &
Pro
cess
ors
2419
240
Hei
nz (H
J)
USA
2217
109
Sara
Lee
Cor
pUS
A5
12.8
653
43Fo
od P
rodu
cers
& P
roce
ssor
s24
2280
6H
ersh
ey F
oods
Cor
pUS
A29
8360
4W
rigle
y (W
m) J
rUS
A2
8.39
671
1.99
543
Food
Pro
duce
rs &
Pro
cess
ors
5640
898
Uni
leve
r NV
CVA
NLD
6107
00C
adbu
ry S
chw
eppe
sG
BR2
11.6
639
43Fo
od P
rodu
cers
& P
roce
ssor
s56
4089
8U
nile
ver N
V C
VAN
LD22
1710
9Sa
ra L
ee C
orp
USA
311
.44
5643
Food
Pro
duce
rs &
Pro
cess
ors
5640
898
Uni
leve
r NV
CVA
NLD
2419
240
Hei
nz (H
J)
USA
217
.10
4343
Food
Pro
duce
rs &
Pro
cess
ors
6010
906
Ajin
omot
o C
oJP
N23
6702
6G
ener
al M
illsUS
A3
11.2
556
44H
ealth
9223
20Sm
ith &
Nep
hew
GBR
2085
102
Baxt
er In
tlUS
A6
22.5
318
115
.19
132
22.2
810
47Pe
rson
al C
are
& H
ouse
hold
Pro
duct
s64
8380
9Ka
oJP
N24
9183
9Ki
mbe
rly-C
lark
USA
317
.79
251
9.40
1448
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2002
305
Abbo
tt La
bs.
Npv
USA
2027
104
Wye
thUS
A3
16.8
641
120
.17
2148
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2002
305
Abbo
tt La
bs.
Npv
USA
2516
152
Lilly
(Eli)
& C
oUS
A3
14.1
361
118
.87
1548
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2002
305
Abbo
tt La
bs.
Npv
USA
2684
703
Pfize
rUS
A5
11.9
746
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y20
0230
5Ab
bott
Labs
. N
pvUS
A27
7884
4Sc
herin
g-Pl
ough
USA
414
.50
391
12.7
315
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y20
0230
5Ab
bott
Labs
. N
pvUS
A71
0306
5N
ovar
tis (R
EGD
)C
HE
312
.24
521
-6.8
758
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y20
2710
4W
yeth
USA
2578
312
Mer
ck &
Co
USA
311
.72
411
-1.4
417
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y20
2710
4W
yeth
USA
7103
065
Nov
artis
(REG
D)
CH
E2
13.0
741
1-1
8.81
6748
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2126
335
Bris
tol M
yers
Squ
ibb
USA
2578
312
Mer
ck &
Co
USA
313
.72
481
-27.
7395
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y25
1615
2Li
lly (E
li) &
Co
USA
2571
883
Phar
mac
ia C
orp
USA
618
.18
3648
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2516
152
Lilly
(Eli)
& C
oUS
A26
8470
3Pf
izer
USA
416
.97
3848
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2571
883
Phar
mac
ia C
orp
USA
2778
844
Sche
ring-
Plou
ghUS
A5
7.59
6148
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2578
312
Mer
ck &
Co
USA
2571
883
Phar
mac
ia C
orp
USA
412
.03
5648
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2578
312
Mer
ck &
Co
USA
7103
065
Nov
artis
(REG
D)
CH
E4
13.3
148
1-6
.47
9748
Phar
mac
eutic
als
& Bi
otec
hnol
ogy
2684
703
Pfize
rUS
A71
0306
5N
ovar
tis (R
EGD
)C
HE
313
.97
371
-5.9
776
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y63
0720
0Ei
sai
JPN
2571
883
Phar
mac
ia C
orp
USA
514
.32
582
16.9
223
32.
484
Sou
rce:
Nom
ura
sed
ol
na
me
ccy
s
edol
nam
e
ccy
#
av
e re
t av
e da
ys #
ave
ret
ave
days
Perf
orm
ance
of
open
posi
tions
@31
Jul
days
%
%
%
Nomura Quantitative Research
Global pairs trading 17
13.
Th
e re
sult
s o
f o
ur
sim
ula
tio
n f
or
ind
ivid
ual
pai
rs (
2)
%%
%
48Ph
arm
aceu
tical
s &
Biot
echn
olog
y68
7044
5Ta
keda
Che
mic
alJP
N25
7188
3Ph
arm
acia
Cor
pUS
A2
12.9
126
10.
001
49To
bacc
o28
7580
Britis
h Am
er T
obac
coG
BR38
3369
Gal
lahe
r G
roup
GBR
213
.38
4349
Toba
cco
4544
92Im
peria
l Tob
acco
Gp
GBR
3833
69G
alla
her
Gro
upG
BR2
20.6
836
52G
ener
al R
etai
lers
2259
101
Targ
et C
orp
USA
2936
921
Wal
-Mar
t Sto
res
USA
311
.27
6653
Leis
ure,
Ent
erta
inm
ent &
Hot
els
2431
95Si
x C
ontin
ents
GBR
2947
956
Wen
dy’s
Intl
USA
39.
5059
53Le
isur
e, E
nter
tain
men
t & H
otel
s22
8987
4D
arde
n R
esta
uran
tsUS
A20
9887
6Yu
m B
rand
sUS
A4
7.62
591
-3.0
857
53Le
isur
e, E
nter
tain
men
t & H
otel
s29
4795
6W
endy
’s In
tlUS
A22
8987
4D
arde
n R
esta
uran
tsUS
A5
17.4
747
14.
1528
53Le
isur
e, E
nter
tain
men
t & H
otel
s63
4926
8Fo
ster
s G
roup
AUS
2431
95Si
x C
ontin
ents
GBR
212
.13
551
5.59
113
54M
edia
& P
hoto
grap
hy22
1285
8C
omca
st S
peci
al A
USA
2230
429
Cox
Com
mun
icatio
ns A
USA
214
.49
2654
Med
ia &
Pho
togr
aphy
2551
443
McG
raw
-Hill
Cos
USA
2632
003
New
Yor
k Ti
mes
CL
AUS
A4
11.4
951
54M
edia
& P
hoto
grap
hy41
4881
0R
eed
Else
vier
NV
NLD
2551
443
McG
raw
-Hill
Cos
USA
316
.67
3159
Tran
spor
t29
1473
4U
nion
Pac
ific C
orp
USA
6298
542
East
Jap
an R
ailw
ayJP
N7
12.6
644
59Tr
ansp
ort
6120
009
Bram
bles
Inds
AUS
6183
552
Cen
tral J
apan
Rai
lwy
JPN
413
.19
391
8.78
363
Food
& D
rug
Ret
aile
rs76
7640
Sain
sbur
y (J
)G
BR24
9740
6Kr
oger
USA
320
.82
341
5.22
7763
Food
& D
rug
Ret
aile
rs76
7640
Sain
sbur
y (J
)G
BR27
6716
5Sa
few
ay I
ncUS
A3
13.4
855
11.
0336
63Fo
od &
Dru
g R
etai
lers
2497
406
Krog
erUS
A27
6716
5Sa
few
ay I
ncUS
A6
10.9
250
67Te
leco
mm
unica
tion
Serv
ices
2090
571
Veriz
on C
omm
s.US
A25
8919
8Al
ltel C
orp
USA
512
.45
5667
Tele
com
mun
icatio
n Se
rvice
s20
9060
1Be
llsou
th C
orp
USA
5533
976
Swiss
com
CH
E2
9.90
491
6.57
502
18.7
58
67Te
leco
mm
unica
tion
Serv
ices
5051
605
Hel
leni
c Te
leco
mG
RC
5533
976
Swiss
com
CH
E3
18.1
330
112
.02
5567
Tele
com
mun
icatio
n Se
rvice
s57
3252
4Te
lefo
nica
De
Espa
naES
P52
9750
6Te
leco
m It
alia
ITA
310
.05
631
-7.9
658
72El
ectri
city
2026
242
Amer
. Ele
c Po
wer
Co
USA
7908
73Sc
ott.
& So
uth.
Eng
yG
BR2
18.0
451
1-7
.78
1772
Elec
tricit
y20
2624
2Am
er. E
lec
Pow
er C
oUS
A21
3815
8Se
mpr
a En
ergy
USA
216
.84
3372
Elec
tricit
y20
2624
2Am
er. E
lec
Pow
er C
oUS
A22
8022
0D
TE E
nerg
yUS
A3
9.32
5772
Elec
tricit
y20
7340
8C
onst
ella
tion
Egy
Gp
USA
3122
387
Nat
iona
l Grid
Gro
upG
BR3
5.36
6572
Elec
tricit
y21
0092
0Fi
rste
nerg
y C
orp.
USA
2138
158
Sem
pra
Ener
gyUS
A3
8.27
781
14.9
228
72El
ectri
city
2138
158
Sem
pra
Ener
gyUS
A79
0873
Scot
t. &
Sout
h. E
ngy
GBR
515
.35
301
5.96
2172
Elec
tricit
y21
3815
8Se
mpr
a En
ergy
USA
2050
832
Amer
en C
orp
USA
210
.28
821
-0.7
921
72El
ectri
city
2198
981
Cin
ergy
Cor
pUS
A79
0873
Scot
t. &
Sout
h. E
ngy
GBR
212
.91
381
20.9
07
72El
ectri
city
2280
220
DTE
Ene
rgy
USA
7908
73Sc
ott.
& So
uth.
Eng
yG
BR3
15.2
220
114
.81
772
Elec
tricit
y22
8022
0D
TE E
nerg
yUS
A21
0092
0Fi
rste
nerg
y C
orp.
USA
210
.23
651
12.5
626
72El
ectri
city
2283
906
Duk
e En
ergy
Cor
pUS
A23
1708
7En
terg
y C
orp
USA
211
.43
561
-26.
3714
072
Elec
tricit
y22
8390
6D
uke
Ener
gy C
orp
USA
2707
677
Publ
ic S
vc E
ntp
Grp
USA
214
.73
521
16.5
245
24.
7145
72El
ectri
city
2317
087
Ente
rgy
Cor
pUS
A28
2960
1So
uthe
rn C
oUS
A4
7.35
871
2.09
772
Elec
tricit
y23
2891
5FP
L G
roup
USA
7908
73Sc
ott.
& So
uth.
Eng
yG
BR3
13.7
636
117
.05
772
Elec
tricit
y25
4204
9D
omin
ion
Res
ourc
esUS
A22
8390
6D
uke
Ener
gy C
orp
USA
28.
9085
72El
ectri
city
2542
049
Dom
inio
n R
esou
rces
USA
2317
087
Ente
rgy
Cor
pUS
A2
16.1
057
72El
ectri
city
2604
206
Prog
ress
Ene
rgy
USA
7908
73Sc
ott.
& So
uth.
Eng
yG
BR2
16.8
034
72El
ectri
city
2604
206
Prog
ress
Ene
rgy
USA
2138
158
Sem
pra
Ener
gyUS
A3
10.0
056
12.
9126
72El
ectri
city
2604
206
Prog
ress
Ene
rgy
USA
2280
220
DTE
Ene
rgy
USA
213
.41
4572
Elec
tricit
y28
2960
1So
uthe
rn C
oUS
A27
0767
7Pu
blic
Svc
Ent
p G
rpUS
A3
10.2
055
1-1
7.26
1672
Elec
tricit
y28
8570
0TX
U C
orpo
ratio
nUS
A79
0873
Scot
t. &
Sout
h. E
ngy
GBR
217
.07
211
3.11
1672
Elec
tricit
y28
8570
0TX
U C
orpo
ratio
nUS
A21
3815
8Se
mpr
a En
ergy
USA
220
.41
302
12.7
836
72El
ectri
city
2885
700
TXU
Cor
pora
tion
USA
2328
915
FPL
Gro
upUS
A2
8.99
8572
Elec
tricit
y44
2464
0Ib
erdr
ola
ESP
7908
73Sc
ott.
& So
uth.
Eng
yG
BR2
18.8
119
13.
612
72El
ectri
city
4424
640
Iber
drol
aES
P20
2624
2Am
er. E
lec
Pow
er C
oUS
A2
16.1
126
72El
ectri
city
4424
640
Iber
drol
aES
P20
5083
2Am
eren
Cor
pUS
A2
15.4
022
1-5
.29
572
Elec
tricit
y44
2464
0Ib
erdr
ola
ESP
2138
158
Sem
pra
Ener
gyUS
A2
16.4
435
118
.99
2072
Elec
tricit
y44
2464
0Ib
erdr
ola
ESP
2198
981
Cin
ergy
Cor
pUS
A2
19.2
116
1-0
.90
272
Elec
tricit
y44
2464
0Ib
erdr
ola
ESP
2280
220
DTE
Ene
rgy
USA
210
.17
6172
Elec
tricit
y44
2464
0Ib
erdr
ola
ESP
2328
915
FPL
Gro
upUS
A3
11.0
259
72El
ectri
city
4424
640
Iber
drol
aES
P26
0420
6Pr
ogre
ss E
nerg
yUS
A3
13.4
425
72El
ectri
city
4424
640
Iber
drol
aES
P28
8570
0TX
U C
orpo
ratio
nUS
A2
9.29
6472
Elec
tricit
y60
9701
7C
LP H
oldi
ngs
HKG
7908
73Sc
ott.
& So
uth.
Eng
yG
BR2
15.1
747
72El
ectri
city
6097
017
CLP
Hol
ding
sH
KG20
5083
2Am
eren
Cor
pUS
A2
11.0
742
72El
ectri
city
6097
017
CLP
Hol
ding
sH
KG68
9540
4To
kyo
Elec
Pow
erJP
N2
15.3
849
72El
ectri
city
6195
609
Chu
bu E
lec
Pow
erJP
N79
0873
Scot
t. &
Sout
h. E
ngy
GBR
212
.17
6372
Elec
tricit
y61
9560
9C
hubu
Ele
c Po
wer
JPN
2026
242
Amer
. Ele
c Po
wer
Co
USA
36.
8069
1-1
4.85
2172
Elec
tricit
y61
9560
9C
hubu
Ele
c Po
wer
JPN
2100
920
Firs
tene
rgy
Cor
p.US
A3
13.2
648
11.
5017
72El
ectri
city
6195
609
Chu
bu E
lec
Pow
erJP
N21
3815
8Se
mpr
a En
ergy
USA
319
.23
271
3.50
2172
Elec
tricit
y61
9560
9C
hubu
Ele
c Po
wer
JPN
2198
981
Cin
ergy
Cor
pUS
A3
6.12
761
14.4
510
72El
ectri
city
6195
609
Chu
bu E
lec
Pow
erJP
N28
8570
0TX
U C
orpo
ratio
nUS
A2
17.4
130
1-0
.57
16
Sou
rce:
Nom
ura
Perf
orm
ance
of
open
posi
tions
@31
Jul
days
FTSE
sec
tor
St
ock
A
S
tock
B
9
9-01
(in-
sam
ple)
02
(out
-sam
ple)
sed
ol
nam
e
ccy
s
edol
na
me
ccy
#
ave
ret
av
e da
ys #
a
ve r
et
ave
day
s
Nomura Quantitative Research
Global pairs trading18
13.
Th
e re
sult
s o
f o
ur
sim
ula
tio
n f
or
ind
ivid
ual
pai
rs (
3)
FTSE
sec
tor
Stoc
k A
Stoc
k B
99-0
1 (in
-sam
ple)
02 (
out-
sam
ple)
sedo
lna
me
ccy
se
dol
nam
e c
cy#
ave
ret
ave
days
#av
e re
tav
e da
ys
%
%%
72El
ectri
city
6195
609
Chu
bu E
lec
Pow
erJP
N68
9526
6To
hoku
Ele
c Po
wer
JPN
215
.26
4572
Elec
tricit
y64
3532
7H
ong
Kong
Ele
ctric
HKG
2542
049
Dom
inio
n R
esou
rces
USA
24.
8873
119
.97
772
Elec
tricit
y64
8348
9Ka
nsai
Ele
c Po
wer
JPN
2216
850
Con
s Ed
ison
Hol
ding
USA
216
.27
321
18.1
29
72El
ectri
city
6483
489
Kans
ai E
lec
Pow
erJP
N26
0420
6Pr
ogre
ss E
nerg
yUS
A4
12.2
648
114
.25
972
Elec
tricit
y64
8348
9Ka
nsai
Ele
c Po
wer
JPN
2885
700
TXU
Cor
pora
tion
USA
215
.39
291
3.75
1672
Elec
tricit
y64
9980
6Ky
ushu
Ele
c Po
wer
JPN
7908
73Sc
ott.
& So
uth.
Eng
yG
BR3
14.4
938
72El
ectri
city
6499
806
Kyus
hu E
lec
Pow
erJP
N20
2624
2Am
er. E
lec
Pow
er C
oUS
A3
3.90
791
-6.0
717
72El
ectri
city
6499
806
Kyus
hu E
lec
Pow
erJP
N21
0092
0Fi
rste
nerg
y C
orp.
USA
214
.46
341
7.54
1772
Elec
tricit
y64
9980
6Ky
ushu
Ele
c Po
wer
JPN
2138
158
Sem
pra
Ener
gyUS
A2
15.5
315
18.
8821
72El
ectri
city
6499
806
Kyus
hu E
lec
Pow
erJP
N21
9898
1C
iner
gy C
orp
USA
38.
5658
125
.05
872
Elec
tricit
y64
9980
6Ky
ushu
Ele
c Po
wer
JPN
2280
220
DTE
Ene
rgy
USA
215
.92
321
13.5
010
72El
ectri
city
6499
806
Kyus
hu E
lec
Pow
erJP
N26
0420
6Pr
ogre
ss E
nerg
yUS
A3
2.67
822
12.2
042
72El
ectri
city
6499
806
Kyus
hu E
lec
Pow
erJP
N28
8570
0TX
U C
orpo
ratio
nUS
A2
14.6
921
14.
9216
72El
ectri
city
6895
266
Toho
ku E
lec
Pow
erJP
N20
2624
2Am
er. E
lec
Pow
er C
oUS
A2
10.9
752
112
.72
372
-9.8
721
72El
ectri
city
6895
266
Toho
ku E
lec
Pow
erJP
N21
0092
0Fi
rste
nerg
y C
orp.
USA
310
.55
591
4.11
1872
Elec
tricit
y68
9526
6To
hoku
Ele
c Po
wer
JPN
2604
206
Prog
ress
Ene
rgy
USA
45.
0767
116
.79
872
Elec
tricit
y68
9526
6To
hoku
Ele
c Po
wer
JPN
2885
700
TXU
Cor
pora
tion
USA
315
.48
461
4.55
1672
Elec
tricit
y68
9540
4To
kyo
Elec
Pow
erJP
N20
5083
2Am
eren
Cor
pUS
A3
8.27
6572
Elec
tricit
y68
9540
4To
kyo
Elec
Pow
erJP
N22
8022
0D
TE E
nerg
yUS
A2
15.6
831
112
.88
1072
Elec
tricit
y68
9540
4To
kyo
Elec
Pow
erJP
N27
0767
7Pu
blic
Svc
Ent
p G
rpUS
A5
9.99
431
-1.2
216
72El
ectri
city
6895
404
Toky
o El
ec P
ower
JPN
4424
640
Iber
drol
aES
P3
11.7
351
10.
278
73G
as D
istri
butio
n22
4962
9Ke
yspa
n C
orpo
ratio
nUS
A22
9594
5El
Pas
o C
orpo
ratio
nUS
A3
14.2
837
113
.26
362
-59.
4765
73G
as D
istri
butio
n24
6614
9En
brid
geC
AN22
4962
9Ke
yspa
n C
orpo
ratio
nUS
A2
9.57
5573
Gas
Dis
tribu
tion
2466
149
Enbr
idge
CAN
6895
448
Toky
o G
asJP
N4
17.3
327
81Ba
nks
4455
Abbe
y N
atio
nal
GBR
3861
4Al
lianc
e &
Leic
este
rG
BR3
6.34
811
-17.
0015
081
Bank
s44
55Ab
bey
Nat
iona
lG
BR14
5279
Nor
ther
n R
ock
GBR
48.
3075
15.
3272
81Ba
nks
4455
Abbe
y N
atio
nal
GBR
2914
842
Uni
on P
lant
ers
USA
514
.12
4481
Bank
s40
8284
Stan
dard
Cha
rtere
dG
BR48
1334
5Sk
and
Ensk
ilda
Bkn
ASW
E3
12.6
349
115
.89
4181
Bank
s87
0612
Lloy
ds T
SB G
roup
GBR
2462
222
Flee
tbos
ton
Fin
Cp
USA
411
.65
671
12.1
123
2-9
.84
1181
Bank
s87
0612
Lloy
ds T
SB G
roup
GBR
2860
990
Sunt
rust
Ban
ksUS
A5
15.6
738
81Ba
nks
8706
12Ll
oyds
TSB
Gro
upG
BR29
1484
2U
nion
Pla
nter
sUS
A2
15.9
927
81Ba
nks
2023
737
AMBA
C F
inan
cial G
rpUS
A71
4761
0D
exia
BEL
216
.30
3481
Bank
s20
7600
9Ba
nk o
f Mon
treal
CAN
2170
525
Can
adia
n Im
p Ba
nkC
AN2
5.88
6781
Bank
s20
7600
9Ba
nk o
f Mon
treal
CAN
2336
747
Fifth
Thi
rd B
anco
rpUS
A2
9.87
6181
Bank
s20
7600
9Ba
nk o
f Mon
treal
CAN
2692
665
PNC
Fin
ancia
l Svc
Gp
USA
410
.08
501
5.02
1081
Bank
s20
7600
9Ba
nk o
f Mon
treal
CAN
5857
836
Banc
o Po
pula
r Es
pES
P2
3.32
7781
Bank
s20
7602
1Ba
nk o
f New
Yor
kUS
A25
7635
0M
ello
n Fi
nanc
ial C
pUS
A2
12.5
256
1-0
.20
781
Bank
s20
7602
1Ba
nk o
f New
Yor
kUS
A26
4910
0W
ells
Farg
o &
Co.
USA
48.
5379
81Ba
nks
2076
021
Bank
of N
ew Y
ork
USA
5380
031
Nor
dea
ABSW
E4
14.4
324
110
.02
4881
Bank
s20
7602
1Ba
nk o
f New
Yor
kUS
A57
0366
1Sv
ensk
a H
ande
lsbn
kSW
E4
12.9
631
111
.31
5881
Bank
s20
7628
1Ba
nk o
f Nov
a Sc
otia
CAN
2649
100
Wel
ls Fa
rgo
& C
o.US
A3
7.45
7781
Bank
s20
7628
1Ba
nk o
f Nov
a Sc
otia
CAN
5703
661
Sven
ska
Han
dels
bnk
SWE
314
.80
2781
Bank
s20
7628
1Ba
nk o
f Nov
a Sc
otia
CAN
5857
836
Banc
o Po
pula
r Es
pES
P2
12.6
160
81Ba
nks
2076
281
Bank
of N
ova
Scot
iaC
AN62
1503
5C
omw
lth B
ank
Of A
ust
AUS
213
.94
501
17.8
914
81Ba
nks
2076
281
Bank
of N
ova
Scot
iaC
AN67
6842
1St
.Geo
rge
Bank
AUS
216
.07
4081
Bank
s21
7052
5C
anad
ian
Imp
Bank
CAN
2336
747
Fifth
Thi
rd B
anco
rpUS
A3
15.8
930
81Ba
nks
2170
525
Can
adia
n Im
p Ba
nkC
AN27
5438
3R
oyal
Ban
k O
f Can
ada
CAN
27.
7768
81Ba
nks
2170
525
Can
adia
n Im
p Ba
nkC
AN57
0366
1Sv
ensk
a H
ande
lsbn
kSW
E2
9.79
6181
Bank
s21
7052
5C
anad
ian
Imp
Bank
CAN
6768
421
St.G
eorg
e Ba
nkAU
S2
6.68
781
-4.1
351
81Ba
nks
2190
385
JP M
orga
n C
hase
& C
oUS
A58
1249
3B
C P
ortu
gues
PRT
414
.41
431
17.3
36
224
.97
781
Bank
s22
1287
0C
omer
ica
USA
2490
911
Keyc
orp
USA
210
.74
7481
Bank
s22
9567
7Ba
nk o
f Am
eric
aUS
A25
6811
9M
arsh
all &
Ilsle
yUS
A3
12.2
763
81Ba
nks
2297
907
Citi
grou
pUS
A59
6651
6So
c G
ener
ale
De
FrFR
A3
15.7
921
14.
7010
281
Bank
s22
9859
1Ba
nk O
ne C
orp
USA
2339
638
Reg
ions
Fin
anci
alUS
A2
4.90
9081
Bank
s22
9859
1Ba
nk O
ne C
orp
USA
2490
911
Keyc
orp
USA
411
.17
5481
Bank
s24
4596
6H
untin
gton
Ban
csha
reUS
A57
1347
7C
redi
t Ly
onna
isFR
A2
13.1
041
81Ba
nks
2462
222
Flee
tbos
ton
Fin
Cp
USA
2860
990
Sunt
rust
Ban
ksUS
A2
5.49
751
-19.
6413
81Ba
nks
2462
222
Flee
tbos
ton
Fin
Cp
USA
4846
523
Fore
ning
sspa
rb S
er A
SWE
313
.57
441
14.2
539
2-0
.68
1181
Bank
s24
9091
1Ke
ycor
pUS
A44
55Ab
bey
Nat
iona
lG
BR4
19.7
730
81Ba
nks
2212
870
Com
eric
aUS
A44
55Ab
bey
Nat
iona
lG
BR3
10.6
064
Sou
rce:
Nom
ura
Perf
orm
ance
of
open
posi
tions
@31
Jul
days
Nomura Quantitative Research
Global pairs trading 19
13.
Th
e re
sult
s o
f o
ur
sim
ula
tio
n f
or
ind
ivid
ual
pai
rs (
4)
FTSE
sec
tor
Stoc
k A
Stoc
k B
99-0
1 (in
-sam
ple)
02 (
out-
sam
ple)
sedo
lna
me
ccy
sedo
lna
me
ccy
#av
e re
tav
e da
ys#
ave
ret
ave
days
%
%%
81Ba
nks
2490
911
Keyc
orp
USA
3861
4Al
lianc
e &
Leic
este
rG
BR3
16.2
550
81Ba
nks
2490
911
Keyc
orp
USA
2830
904
BB&T
Cor
pora
tion
USA
210
.67
5081
Bank
s25
7635
0M
ello
n Fi
nanc
ial C
pUS
A53
8003
1N
orde
a AB
SWE
516
.34
2381
Bank
s25
7635
0M
ello
n Fi
nanc
ial C
pUS
A57
0366
1Sv
ensk
a H
ande
lsbn
kSW
E6
14.5
441
1-2
.18
2281
Bank
s25
7635
0M
ello
n Fi
nanc
ial C
pUS
A62
1503
5C
omw
lth B
ank
Of A
ust
AUS
513
.42
471
-16.
0940
81Ba
nks
2576
350
Mel
lon
Fina
ncia
l Cp
USA
7126
114
UBS
AG
CH
E4
14.8
832
1-0
.34
1881
Bank
s26
2504
7N
atio
nal C
ity C
orp
USA
2341
484
Firs
t Ten
n N
atl
USA
219
.59
3181
Bank
s26
4910
0W
ells
Farg
o &
Co.
USA
2336
747
Fifth
Thi
rd B
anco
rpUS
A2
10.6
045
81Ba
nks
2649
100
Wel
ls Fa
rgo
& C
o.US
A25
7635
0M
ello
n Fi
nanc
ial C
pUS
A2
11.4
139
81Ba
nks
2649
100
Wel
ls Fa
rgo
& C
o.US
A53
8003
1N
orde
a AB
SWE
315
.10
4381
Bank
s26
4910
0W
ells
Farg
o &
Co.
USA
5703
661
Sven
ska
Han
dels
bnk
SWE
411
.90
4181
Bank
s26
4910
0W
ells
Farg
o &
Co.
USA
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S3
12.5
752
81Ba
nks
2649
100
Wel
ls Fa
rgo
& C
o.US
A71
2611
4U
BS A
GC
HE
219
.73
2181
Bank
s26
9266
5PN
C F
inan
cial S
vc G
pUS
A23
3674
7Fi
fth T
hird
Ban
corp
USA
311
.60
4081
Bank
s26
9266
5PN
C F
inan
cial S
vc G
pUS
A25
7635
0M
ello
n Fi
nanc
ial C
pUS
A2
9.42
6081
Bank
s26
9266
5PN
C F
inan
cial S
vc G
pUS
A53
8003
1N
orde
a AB
SWE
317
.41
421
20.7
84
81Ba
nks
2692
665
PNC
Fin
ancia
l Svc
Gp
USA
7126
114
UBS
AG
CH
E2
14.2
047
81Ba
nks
2754
383
Roy
al B
ank
Of C
anad
aC
AN26
9266
5PN
C F
inan
cial S
vc G
pUS
A2
10.4
460
81Ba
nks
2754
383
Roy
al B
ank
Of C
anad
aC
AN53
8003
1N
orde
a AB
SWE
212
.28
4781
Bank
s27
5438
3R
oyal
Ban
k O
f Can
ada
CAN
5703
661
Sven
ska
Han
dels
bnk
SWE
29.
9850
81Ba
nks
2754
383
Roy
al B
ank
Of C
anad
aC
AN58
5783
6Ba
nco
Popu
lar
Esp
ESP
24.
6775
81Ba
nks
2830
904
BB&T
Cor
pora
tion
USA
4455
Abbe
y N
atio
nal
GBR
212
.90
6081
Bank
s28
3090
4BB
&T C
orpo
ratio
nUS
A14
5279
Nor
ther
n R
ock
GBR
515
.55
3381
Bank
s28
6099
0Su
ntru
st B
anks
USA
4455
Abbe
y N
atio
nal
GBR
49.
1358
81Ba
nks
2897
222
Toro
nto-
Dom
inio
n C
omC
AN54
0528
HSB
C H
ldgs
GBR
26.
9367
11.
5342
81Ba
nks
2897
222
Toro
nto-
Dom
inio
n C
omC
AN31
3486
5Ba
rcla
ysG
BR4
11.4
044
112
.68
5181
Bank
s28
9722
2To
ront
o-D
omin
ion
Com
CAN
7171
589
Cre
dit S
uiss
e G
roup
CH
E2
10.9
248
81Ba
nks
2897
222
Toro
nto-
Dom
inio
n C
omC
AN73
0968
1BN
P Pa
ribas
FRA
413
.79
561
7.03
5481
Bank
s29
1484
2U
nion
Pla
nter
sUS
A38
614
Allia
nce
& Le
ices
ter
GBR
316
.25
3981
Bank
s30
7073
2Ba
nk o
f Ire
land
IRL
2158
974
Syno
vus
Fina
ncia
lUS
A5
15.1
536
81Ba
nks
4020
684
Allie
d Iri
sh B
anks
IRL
4455
Abbe
y N
atio
nal
GBR
211
.14
6781
Bank
s40
2068
4Al
lied
Irish
Ban
ksIR
L38
614
Allia
nce
& Le
ices
ter
GBR
310
.91
7481
Bank
s40
2068
4Al
lied
Irish
Ban
ksIR
L87
0612
Lloy
ds T
SB G
roup
GBR
316
.73
3181
Bank
s40
2068
4Al
lied
Irish
Ban
ksIR
L22
1287
0C
omer
ica
USA
415
.60
391
15.8
23
81Ba
nks
4020
684
Allie
d Iri
sh B
anks
IRL
2490
911
Keyc
orp
USA
214
.50
461
3.45
281
Bank
s40
2068
4Al
lied
Irish
Ban
ksIR
L28
3090
4BB
&T C
orpo
ratio
nUS
A4
18.3
730
117
.70
381
Bank
s40
2068
4Al
lied
Irish
Ban
ksIR
L28
6099
0Su
ntru
st B
anks
USA
311
.51
611
22.2
826
23.
372
81Ba
nks
4232
445
Uni
Cre
dito
Ital
iano
ITA
4846
523
Fore
ning
sspa
rb S
er A
SWE
314
.93
3481
Bank
s42
3244
5U
ni C
redi
to It
alia
noIT
A58
1249
3B
C P
ortu
gues
PRT
312
.56
5381
Bank
s48
1334
5Sk
and
Ensk
ilda
Bkn
ASW
E71
2611
4U
BS A
GC
HE
311
.30
531
15.0
919
81Ba
nks
4846
523
Fore
ning
sspa
rb S
er A
SWE
5812
493
B C
Por
tugu
esPR
T7
16.5
830
111
.49
5281
Bank
s52
5076
9AB
N A
mro
Hld
gs.
NLD
4082
84St
anda
rd C
harte
red
GBR
312
.78
441
6.40
881
Bank
s52
5076
9AB
N A
mro
Hld
gs.
NLD
4813
345
Skan
d En
skild
a Bk
n A
SWE
410
.64
5281
Bank
s52
5076
9AB
N A
mro
Hld
gs.
NLD
6916
781
Uni
ted
Ove
rsea
s Ba
nkSG
P2
7.70
5481
Bank
s53
8003
1N
orde
a AB
SWE
7126
114
UBS
AG
CH
E4
16.5
533
81Ba
nks
5501
906
BBVA
ESP
2076
021
Bank
of N
ew Y
ork
USA
318
.01
3081
Bank
s55
0190
6BB
VAES
P25
7635
0M
ello
n Fi
nanc
ial C
pUS
A2
9.82
381
14.7
810
81Ba
nks
5501
906
BBVA
ESP
2649
100
Wel
ls Fa
rgo
& C
o.US
A2
16.8
032
81Ba
nks
5501
906
BBVA
ESP
5380
031
Nor
dea
ABSW
E3
15.5
836
81Ba
nks
5501
906
BBVA
ESP
5556
575
San
Paol
o-Im
iIT
A4
13.2
457
81Ba
nks
5501
906
BBVA
ESP
5812
493
B C
Por
tugu
esPR
T2
17.4
455
81Ba
nks
5501
906
BBVA
ESP
5857
836
Banc
o Po
pula
r Es
pES
P4
13.5
445
81Ba
nks
5501
906
BBVA
ESP
7126
114
UBS
AG
CH
E3
13.5
949
81Ba
nks
5556
575
San
Paol
o-Im
iIT
A58
1249
3B
C P
ortu
gues
PRT
313
.52
381
10.8
243
81Ba
nks
5705
946
BSC
HES
P40
8284
Stan
dard
Cha
rtere
dG
BR2
12.6
254
10.
001
81Ba
nks
5705
946
BSC
HES
P48
1334
5Sk
and
Ensk
ilda
Bkn
ASW
E3
12.2
946
113
.19
752
-7.8
82
81Ba
nks
5705
946
BSC
HES
P52
5076
9AB
N A
mro
Hld
gs.
NLD
212
.58
2581
Bank
s57
0594
6BS
CH
ESP
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S2
13.1
428
81Ba
nks
5705
946
BSC
HES
P69
1678
1U
nite
d O
vers
eas
Bank
SGP
28.
5457
81Ba
nks
5750
355
Deu
tsch
e Ba
nkD
EU59
6651
6So
c G
ener
ale
De
FrFR
A3
12.9
649
119
.66
9
Sou
rce:
Nom
ura
Perf
orm
ance
of
open
posi
tions
@31
Jul
days
Nomura Quantitative Research
Global pairs trading20
13.
Th
e re
sult
s o
f o
ur
sim
ula
tio
n f
or
ind
ivid
ual
pai
rs (
6)
FTSE
sec
tor
Stoc
k A
Stoc
k B
99-0
1 (in
-sam
ple)
02 (
out-
sam
ple)
sedo
lna
me
ccy
sedo
lna
me
ccy
#av
e re
tav
e da
ys#
ave
ret
ave
days
%
%
%
81Ba
nks
5857
836
Banc
o Po
pula
r Es
pES
P23
3674
7Fi
fth T
hird
Ban
corp
USA
314
.20
391
15.4
816
81Ba
nks
5857
836
Banc
o Po
pula
r Es
pES
P25
7635
0M
ello
n Fi
nanc
ial C
pUS
A4
10.9
760
1-2
2.55
4381
Bank
s58
5783
6Ba
nco
Popu
lar
Esp
ESP
2692
665
PNC
Fin
ancia
l Svc
Gp
USA
312
.97
521
14.6
627
2-2
.85
1081
Bank
s58
5783
6Ba
nco
Popu
lar
Esp
ESP
5380
031
Nor
dea
ABSW
E3
9.04
7481
Bank
s58
5783
6Ba
nco
Popu
lar
Esp
ESP
5703
661
Sven
ska
Han
dels
bnk
SWE
214
.69
3081
Bank
s58
5783
6Ba
nco
Popu
lar
Esp
ESP
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S2
17.2
117
81Ba
nks
5857
836
Banc
o Po
pula
r Es
pES
P71
2611
4U
BS A
GC
HE
513
.82
461
-1.6
08
81Ba
nks
6065
586
ANZ
Bank
AUS
2170
525
Can
adia
n Im
p Ba
nkC
AN2
13.2
048
81Ba
nks
6065
586
ANZ
Bank
AUS
4588
825
Dan
ske
Bank
A/S
DN
K3
9.71
4981
Bank
s60
6558
6AN
Z Ba
nkAU
S57
0366
1Sv
ensk
a H
ande
lsbn
kSW
E4
9.75
5181
Bank
s60
7614
6W
estp
ac B
anki
ng C
orp
AUS
2076
281
Bank
of N
ova
Scot
iaC
AN2
13.5
531
115
.37
981
Bank
s60
7614
6W
estp
ac B
anki
ng C
orp
AUS
2170
525
Can
adia
n Im
p Ba
nkC
AN2
13.9
547
81Ba
nks
6076
146
Wes
tpac
Ban
king
Cor
pAU
S23
3674
7Fi
fth T
hird
Ban
corp
USA
215
.51
3981
Bank
s60
7614
6W
estp
ac B
anki
ng C
orp
AUS
2576
350
Mel
lon
Fina
ncia
l Cp
USA
37.
3167
1-1
2.63
3781
Bank
s60
7614
6W
estp
ac B
anki
ng C
orp
AUS
2649
100
Wel
ls Fa
rgo
& C
o.US
A4
12.4
556
81Ba
nks
6076
146
Wes
tpac
Ban
king
Cor
pAU
S53
8003
1N
orde
a AB
SWE
215
.32
3381
Bank
s60
7614
6W
estp
ac B
anki
ng C
orp
AUS
5703
661
Sven
ska
Han
dels
bnk
SWE
27.
7859
81Ba
nks
6076
146
Wes
tpac
Ban
king
Cor
pAU
S58
5783
6Ba
nco
Popu
lar
Esp
ESP
28.
3668
81Ba
nks
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S48
1334
5Sk
and
Ensk
ilda
Bkn
ASW
E6
15.1
837
81Ba
nks
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S57
0366
1Sv
ensk
a H
ande
lsbn
kSW
E3
7.14
7381
Bank
s62
1503
5C
omw
lth B
ank
Of A
ust
AUS
6768
421
St.G
eorg
e Ba
nkAU
S2
16.5
118
81Ba
nks
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S71
2611
4U
BS A
GC
HE
212
.89
281
16.2
125
23.
1828
81Ba
nks
6408
374
Han
g Se
ng B
ank
HKG
4082
84St
anda
rd C
harte
red
GBR
313
.89
4881
Bank
s64
0837
4H
ang
Seng
Ban
kH
KG57
0594
6BS
CH
ESP
213
.01
631
-19.
4528
81Ba
nks
6408
374
Han
g Se
ng B
ank
HKG
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S2
8.16
8281
Bank
s64
0837
4H
ang
Seng
Ban
kH
KG69
1678
1U
nite
d O
vers
eas
Bank
SGP
413
.79
2881
Bank
s66
2460
8N
atl A
ustra
lia B
kAU
S20
7600
9Ba
nk o
f Mon
treal
CAN
315
.75
2081
Bank
s66
2460
8N
atl A
ustra
lia B
kAU
S20
7628
1Ba
nk o
f Nov
a Sc
otia
CAN
217
.36
241
16.6
629
81Ba
nks
6624
608
Nat
l Aus
tralia
Bk
AUS
2336
747
Fifth
Thi
rd B
anco
rpUS
A2
19.4
527
81Ba
nks
6624
608
Nat
l Aus
tralia
Bk
AUS
2576
350
Mel
lon
Fina
ncia
l Cp
USA
34.
6178
1-1
4.66
4081
Bank
s66
2460
8N
atl A
ustra
lia B
kAU
S26
4910
0W
ells
Farg
o &
Co.
USA
612
.96
5081
Bank
s66
2460
8N
atl A
ustra
lia B
kAU
S27
5438
3R
oyal
Ban
k O
f Can
ada
CAN
215
.93
4181
Bank
s66
2460
8N
atl A
ustra
lia B
kAU
S58
5783
6Ba
nco
Popu
lar
Esp
ESP
211
.20
6581
Bank
s69
1678
1U
nite
d O
vers
eas
Bank
SGP
6215
035
Com
wlth
Ban
k O
f Aus
tAU
S4
9.89
601
15.6
923
81Ba
nks
6916
781
Uni
ted
Ove
rsea
s Ba
nkSG
P66
6368
9O
vers
eas
Chi
nese
Bk
SGP
214
.03
3181
Bank
s71
7158
9C
redi
t Sui
sse
Gro
upC
HE
4082
84St
anda
rd C
harte
red
GBR
214
.39
2181
Bank
s71
7158
9C
redi
t Sui
sse
Gro
upC
HE
5250
769
ABN
Am
ro H
ldgs
.N
LD4
14.9
036
81Ba
nks
7309
681
BNP
Parib
asFR
A48
1334
5Sk
and
Ensk
ilda
Bkn
ASW
E3
6.50
7383
Insu
ranc
e21
9572
2C
hubb
Cor
pUS
A24
7619
3H
artfo
rd F
in S
vc G
pUS
A2
11.5
146
83In
sura
nce
2196
479
Cig
na C
orp
USA
7154
182
ING
Gro
upN
LD5
10.1
568
13.
2613
83In
sura
nce
2695
921
Aetn
aUS
A20
9366
6Be
rksh
ire H
atha
way
AUS
A3
21.1
536
1-2
2.68
106
83In
sura
nce
4056
719
Gen
eral
i Ass
icura
zioIT
A20
9366
6Be
rksh
ire H
atha
way
AUS
A3
15.9
340
83In
sura
nce
4056
719
Gen
eral
i Ass
icura
zioIT
A21
9688
8C
inci
nnat
i Fin
Cp
USA
313
.22
5083
Insu
ranc
e70
8842
9AX
AFR
A52
3148
5Al
lianz
AG
DEU
215
.83
481
32.7
76
84Li
fe A
ssur
ance
2162
38C
GN
UG
BR24
7236
2Je
ffers
on-P
ilot
USA
319
.06
201
-17.
9538
84Li
fe A
ssur
ance
2162
38C
GN
UG
BR24
9251
9M
anul
ife F
inan
cial
CAN
216
.28
2984
Life
Ass
uran
ce21
6238
CG
NU
GBR
2516
378
Linc
oln
Nat
iona
l Cp
USA
36.
6767
84Li
fe A
ssur
ance
2162
38C
GN
UG
BR61
1571
5AM
PAU
S2
7.99
761
-13.
9465
84Li
fe A
ssur
ance
5603
99Le
gal &
Gen
eral
Grp
GBR
6115
715
AMP
AUS
216
.33
381
14.3
715
84Li
fe A
ssur
ance
2472
362
Jeffe
rson
-Pilo
tUS
A25
1637
8Li
ncol
n N
atio
nal C
pUS
A2
5.93
751
0.27
1384
Life
Ass
uran
ce24
7236
2Je
ffers
on-P
ilot
USA
6115
715
AMP
AUS
314
.75
3086
Rea
l Est
ate
6596
729
Mits
ubis
hi E
stat
eJP
N50
4502
Land
Sec
uriti
esG
BR3
14.8
539
1-4
.56
9487
Spec
iality
& O
ther
Fin
ance
2334
150
Fred
die
Mac
USA
2380
250
Gre
enpo
int F
inl
USA
313
.82
361
-7.0
014
487
Spec
iality
& O
ther
Fin
ance
2440
273
Hou
seho
ld I
ntnl
USA
2547
055
MBN
A C
orp
USA
211
.45
621
7.74
7187
Spec
iality
& O
ther
Fin
ance
2697
701
Pow
er C
orp
Can
ada
CAN
2023
737
AMBA
C F
inan
cial G
rpUS
A3
14.8
628
87Sp
ecia
lity &
Oth
er F
inan
ce26
9770
1Po
wer
Cor
p C
anad
aC
AN22
5205
8M
oody
s C
orpo
ratio
nUS
A3
6.42
5487
Spec
iality
& O
ther
Fin
ance
2697
701
Pow
er C
orp
Can
ada
CAN
2547
044
MBI
AUS
A4
17.4
039
87Sp
ecia
lity &
Oth
er F
inan
ce62
5144
8D
aiw
a Se
curit
ies
JPN
6640
284
Nikk
o C
ordi
alJP
N2
20.1
922
93In
form
atio
n Te
chno
logy
Har
dwar
e65
9704
5M
itsub
ishi E
lect
ricJP
N66
4040
0N
EC C
orp
JPN
515
.01
501
-25.
6212
9
Sou
rce:
Nom
ura
Perf
orm
ance
of
open
posi
tions
@31
Jul
days
Nomura Quantitative Research
Global pairs trading 21
Pairs trading in practiceIn the simulations seen up to now, costs have not been taken into account. Let us now
consider the returns that can be achieved by investors in practice, taking costs into account.
The first practical problem concerns the short trades. Pairs trading is not possible without
short selling. Let us assume that short trades are carried out after borrowing stocks on the
stock loan market. As Exhibit 14 shows, the countries with stock loan markets and the
countries that are included in the FTSE Developed index are more or less one and the
same. (see Note 9)
The costs of carrying outpairs trading areconsidered
Stock loan markets
Note 9: The simulations carried out have been limited to stocks in countries with a stock loan market. Ithas also been assumed that, as the universe is stocks with a FTSE market cap of $4.0 billion or more,borrowing these stocks from stock loan markets should not be a major problem. Indeed, we havematched our most recent list of pairs with the stock loan inventory lists of 35 companies that lendstocks, and can confirm that there should be no major problems regarding liquidity.
Exhibit 15 shows our rough calculations of borrowing costs. These costs are annual, so
they need to be divided by 365 to obtain the daily rate.
There is also the question of dividends. When a stock is borrowed on the stock loan
market, the borrower has no entitlement to dividends, which accrue to the lender. The
domestic dividend requirement ratio varies from country to country, because of differences
in tax systems. If the dividend yield on the stock that has been bought is higher than that on
the stock that has been sold, then the former offsets the latter, but if the dividend yield on the
stock that has been bought is lower than that on the stock that has been sold, the investor
must pay the difference.
In addition, our simulations are based on transactions carried out in the local currency. In
practice, however, forex hedging would be required. Hedging costs for pairs where the two
stocks are from different countries therefore need to be estimated.
Another important issue is that of market impact. It is necessary to consider the movement
in share price from the time when the signal appeared to the time when the trade is actually
completed, rather than simply the problem of liquidity. Exhibit 8 shows that there is a
difference in performance of more than one percentage point between transactions carried
out at the closing price on the day the signals appeared and transactions carried out at the
closing price on the following day. This means that a market impact of at least around 1%
can be expected in actual trading.
Exhibit 16 shows our estimate of the actual performance of pairs trading, taking these
costs into account. We calculate that the performance of global pairs trading, taking costs
into account, is 7.0% (or 29.7% on an annualized basis).
Forex hedging andmarket impact
We estimate a return onactual pairs trading of 7%
Nomura Quantitative Research
Global pairs trading22
Ccy Country name Stock loan FTSE FTSEmarket developed world
ARG Argentina N/A
AUS Australia
AUT Austria
BEL Belgium & Luxembourg
BRA Brazil N/A
CAN Canada
CHE Switzerland
CHL Chile N/A
CHN China N/A
COL Colombia N/A
CZE Czech Republic N/A
DEU Germany
DNK Denmark
EGY Egypt N/A
ESP Spain
FIN Finland
FRA France
GBR UK
GRC Greece N/A
HKG Hong Kong, China
HUN Hungary N/A
IDN Indonesia N/A
IND India N/A
IRL Ireland
ISR Israel N/A
ITA Italy
JPN Japan
KOR Korea N/A (soon)
MAR Morocco N/A
MEX Mexico (illiquid)
MYS Malaysia N/A
NLD Netherlands
NOR Norway
NZL New Zealand
PAK Pakistan N/A
PER Peru N/A
PHL Philippines (illiquid)
POL Poland N/A
PRT Portugal
RUS Russia N/A
SGP Singapore
SWE Sweden
THA Thailand
TUR Turkey N/A
TWN Taiwan N/A
USA USA
VEN Venezuela N/A
ZAF South Africa (restriction)
14. Countries with and without a stock loan market
Source: Nomura. Darkened areas have stock loan markets.
Nomura Quantitative Research
Global pairs trading 23
Loan size Domestic Div Req Uptick
<$250,000 $250,000 - $1,000,000 >$1,000,000
AUS 2.5 1.00 0.50 150.00 x
CAD 1.5 0.75 0.30 100.00 x
DEU 2.5 1.00 0.50 100.00 x
ESP 4.0 1.50 1.00 100.00 x
FRA 2.5 1.00 0.50 115.00 x
GBR 2.5 0.75 0.25 90.00 x
ITA 2.5 1.00 0.50 152.86 x
JPN 2.0 0.75 0.25 100.00 yes
MEX 3.5 3.25 3.00 100.00
SWE 3.0 1.00 0.75 100.00 x
USA 1.5 0.50 0.20 100.00 yes
15. Borrowing costs (%)
Note: The reality could be substantially different from these figures. The Domestic Div Req figures shown are for investors domiciled thecountry in question buying stocks listed in the country in question, and the structure is different for non-domiciled investors.Source: Nomura
Let us now look at the differences between global pairs trading and the more usual country-
specific pairs trading. Both have advantages and disadvantages. The advantage of global
pairs trading is that its wider universe makes it possible to select pairs with high liquidity. In
addition, by limiting the universe to FTSE stocks with a FTSE market cap of $4.0 billion or
more, it should be possible to borrow stocks with no major problems. The problem with
global pairs trading, however, is that when different currencies are involved trades are more
complicated and forex hedging costs have to be paid. In addition, even with so-called global
companies based in other countries, a shortage of available information may make it
difficult for investors who wish to investigate in more detail to check their fundamentals.
The reverse is true for country-specific pairs trading. Because of the selection of pairs is
limited to stocks in the same country, the number of pairs is likely to be small (except in the
case of the US), or there may be insufficient liquidity. On the other hand, however, checking
the fundamentals tends to be easier, as both stocks in the pair are likely to be well known to
investors. Exhibit 17 shows these differences.
The advantage of globalpairs trading is that itprovides a wider universe
16. Our estimates of performance taking costs into account
Expected return on pairs trading
Market impact (opportunity loss)
Stock borrowing costs
Forex hedging costs
Commission
Difference between dividends receivedand dividends paid
Net performance
10.00
-1.60
-0.13
-0.46
-0.80
0.00
7.01
Average of closed and open positions on day 65
Difference between performance of trades carried out at closing price onday on which signal appeared and trades carried out at closing price on thefollowing day
Assuming that stocks are borrowed for 50 days at 100bp
Assuming an interest rate spread of 2% and a contract period of 50 days,for both long and short positions
20bp for opening and closing both long and short positions
May also be positive
Source: Nomura
Nomura Quantitative Research
Global pairs trading24
17. A comparison of global pairs trading and regional pairs trading
Large
Small
Size(liquidity)
Region
Global pairs trading
Regional pairs trading
Source: Nomura
Exhibits 18 and 19 show pairs for which signals to open or close the positions have
appeared, on the basis of share prices on 22 August. The signals to open a trade are: (1)
a relative share price deviation of 2σ or more, (2) an expected return of 15% or more, and (3)
a higher consensus rating for the stock to be bought than the stock to be sold. The signals
to close a trade are: (1) a relative share price deviation of 0σ or less, or (2) a consensus
rating for the stock that was bought that is one notch or more higher than the rating for the
stock that was sold (see Note 10).
Pairs for which signalshave appeared
Note 10: In reality, very few pairs satisfy these conditions.
Pros: liquidity can be securedCons: forex hedging costs; difficult tocheck fundamentals
Pros: easy to check fundamentalsCons: difficult to secure liquidity; there tend to be fewinvestment opportunities
Nomura Quantitative Research
Global pairs trading 25
18.
Exa
mp
les
of
case
s w
her
e th
e si
gn
als
to o
pen
pai
rs
hav
e ap
pea
red
FTSE
sec
tor
Date
Long
pos
ition
(A)
Shor
t pos
ition
(B)
Devi
atio
nEx
p.re
turn
Days
sin
ceI/B
/E/S
ratin
gDi
vide
nd y
ield
(%)
Firs
tFi
rst
Sedo
lNa
me
Cou
ntry
Sedo
lNa
me
Cou
ntry
(sig
ma)
%fir
st li
sted
Pric
e A
Pric
e B
Stoc
k A
Stoc
k B
Stoc
k A
Stoc
k B
rece
ivab
leda
yde
viat
ion
48Ph
arm
aceu
tical
s &02
/8/2
268
7044
5Ta
keda
Che
mica
lJa
pan
2571
883
Phar
mac
ia C
orp
USA
2.49
22.2
317
5080
JPY
46.2
5US
D1.
522.
001.
181.
170.
0102
/7/3
12.
31 B
iote
chno
logy
81Ba
nks
02/8
/22
8706
12Ll
oyds
TSB
Gro
upUK
3861
4Al
lianc
e &
Leic
este
rUK
2.39
17.9
412
600
GBX
892
GBX
2.75
2.83
5.70
4.20
1.50
02/8
/72.
9281
Bank
s02
/8/2
255
0190
6BB
VASp
ain
4813
345
Skan
d En
skild
a Bk
n A
Swed
en2.
7516
.1116
10.5
EUR
97SE
K2.
592.
703.
694.
12-0
.43
02/8
/14.
0781
Bank
s02
/8/2
257
0594
6BS
CHSp
ain
4813
345
Skan
d En
skild
a Bk
n A
Swed
en2.
6322
.23
187.
12EU
R97
SEK
2.52
2.70
4.08
4.12
-0.0
402
/7/3
03.
40
Not
e: T
he a
bove
exh
ibit
show
s on
ly p
airs
ope
ned
with
in 2
0 da
ys b
efor
e 22
Aug
ust,
afte
r th
eir
para
met
ers
(dev
iatio
n, e
tc)
satis
fied
our
cond
ition
s fo
r op
enin
g a
pairs
tra
de. T
he n
umbe
r of
ope
npa
irs v
arie
s fr
om d
ay t
o da
y, a
nd is
sm
all i
n th
is e
xhib
it, b
ut s
omet
imes
the
re h
ave
been
mor
e th
an 3
0.S
ourc
e: N
omur
a
Long
pos
ition
(A
)Sh
ort
posi
tion
(B)
Dev
iatio
nAct
. re
turn
Day
sO
peni
ng s
igna
lD
ivid
end
yiel
d(%
)FT
SE s
ecto
rD
ate
Sed
olN
ame
Cou
ntry
Sed
olN
ame
Cou
ntry
(sig
ma)
%tr
aded
Dat
esi
gma
Exp.
ret
Stoc
k A
Stoc
k B
Rec
eiva
ble
7O
il &
Gas
02/8
/12
2685
717
Phill
ips
Petro
leum
US
A66
4140
3N
IPPO
N O
ILJa
pan
-0.0
524
.46
1002
/8/5
2.05
23.6
82.
781.
231.
5541
Bev
erag
es02
/8/2
024
3195
Six
Con
tinen
tsU
K78
3969
Scot
tish
& N
ewca
stle
UK
-0.0
917
.12
1302
/8/2
2.05
17.8
85.
455.
51-0
.06
48Ph
arm
aceu
tical
s &
02/8
/21
2684
703
Pfiz
erU
SA
6307
200
Eisa
iJa
pan
-0.1
818
.57
2802
/7/1
52.
1820
.33
1.52
0.97
0.55
Bio
tech
nolo
gy48
Phar
mac
eutic
als
&02
/8/2
226
8470
3Pf
izer
US
A71
0306
5N
ovar
tis (
REG
D)
Switz
erla
nd-0
.01
-2.5
192
02/4
/17
2.41
15.3
91.
491.
440.
05 B
iote
chno
logy
72El
ectri
city
02/8
/821
0092
0Fi
rste
nerg
y C
orp.
US
A64
9980
6Ky
ushu
Ele
c Po
wer
Japa
n-0
.02
12.8
623
02/7
/93.
2615
.71
4.60
3.42
1.18
72El
ectri
city
02/8
/15
2138
158
Sem
pra
Ener
gyU
SA
2328
915
FPL
Gro
upU
SA
-0.2
215
.05
3202
/7/3
3.26
17.8
94.
444.
160.
2872
Elec
trici
ty02
/8/2
121
0092
0Fi
rste
nerg
y C
orp.
US
A79
0873
Scot
t. &
Sout
h. E
ngy
UK
-0.1
85.
9811
102
/3/2
03.
0915
.47
4.43
4.85
-0.4
272
Elec
trici
ty02
/8/2
221
3815
8Se
mpr
a En
ergy
US
A26
0420
6Pr
ogre
ss E
nerg
yU
SA
-0.1
28.
9242
02/6
/26
2.69
15.2
44.
284.
48-0
.20
72El
ectri
city
02/8
/22
2138
158
Sem
pra
Ener
gyU
SA
6499
806
Kyus
hu E
lec
Pow
erJa
pan
-0.1
817
.80
3702
/7/3
2.85
19.1
94.
283.
380.
9072
Elec
trici
ty02
/8/2
222
8022
0D
TE E
nerg
yU
SA
6895
404
Toky
o El
ec P
ower
Japa
n-0
.01
17.3
226
02/7
/18
2.35
x15
.75
4.65
2.35
2.30
81B
anks
02/8
/859
6651
6So
c G
ener
ale
De
FrFr
ance
2897
222
Toro
nto-
Dom
inio
n C
omC
anad
a-0
.15
28.2
412
02/7
/24
2.49
22.1
35.
223.
271.
9581
Ban
ks02
/8/9
3070
732
Bank
of I
rela
ndIre
land
5857
836
Banc
o Po
pula
r Es
pSp
ain
-0.3
117
.74
902
/7/3
03.
1315
.72
2.76
3.31
-0.5
581
Ban
ks02
/8/1
420
7602
1Ba
nk o
f N
ew Y
ork
US
A54
0528
HSB
C H
ldgs
UK
-0.0
88.
5473
02/5
/62.
7316
.52
2.27
4.32
-2.0
581
Ban
ks02
/8/1
425
7635
0M
ello
n Fi
nanc
ial C
pU
SA
4232
445
Uni
Cre
dito
Ital
iano
Italy
-0.1
412
.49
33/0
2/7/
12.
7419
.93
1.75
3.87
-2.1
281
Ban
ks02
/8/1
426
9266
5PN
C F
inan
cial
Svc
Gp
US
A31
3486
5B
arcl
ays
UK
-0.1
422
.25
2002
/7/1
83.
0723
.67
4.38
3.92
0.46
81B
anks
02/8
/15
2648
668
Nor
ther
n Tr
ust
US
A57
5035
5D
euts
che
Bank
Ger
man
y-0
.17
7.25
7402
/5/6
4.28
17.9
11.
572.
16-0
.59
81B
anks
02/8
/16
5250
769
ABN
Am
ro H
ldgs
.N
ethe
rland
s48
4652
3Fo
reni
ngss
parb
Ser
AS
wed
en-0
.44
22.3
319
02/7
/23
2.69
16.1
15.
295.
42-0
.13
81B
anks
02/8
/20
2297
907
Citi
grou
pU
SA
2897
222
Toro
nto-
Dom
inio
n C
omC
anad
a-0
.04
25.7
521
02/7
/23
4.80
21.5
62.
013.
19-1
.18
81B
anks
02/8
/20
2297
907
Citi
grou
pU
SA
5750
355
Deu
tsch
e Ba
nkG
erm
any
-0.2
38.
0477
02/5
/64.
1116
.05
2.01
2.08
-0.0
781
Ban
ks02
/8/2
022
9790
7C
itigr
oup
US
A59
6651
6So
c G
ener
ale
De
FrFr
ance
-0.0
719
.34
1202
/8/5
2.12
16.8
22.
015.
13-3
.12
81B
anks
02/8
/21
7126
114
UBS
AG
Switz
erla
nd54
0528
HSB
C H
ldgs
UK
-0.3
719
.36
2202
/7/2
33.
9215
.88
2.52
4.18
-1.6
681
Ban
ks02
/8/2
171
7158
9C
redi
t Su
isse
Gro
upSw
itzer
land
5812
493
B C
Por
tugu
esPo
rtuga
l-0
.05
24.8
014
02/8
/22.
1024
.66
4.67
5.32
-0.6
581
Ban
ks02
/8/2
248
1334
5Sk
and
Ensk
ilda
Bkn
AS
wed
en54
0528
HSB
C H
ldgs
UK
-1.0
526
.37
2002
/7/2
63.
6917
.09
4.12
4.16
-0.0
481
Ban
ks02
/8/2
271
2611
4U
BS A
GSw
itzer
land
5857
836
Banc
o Po
pula
r Es
pSp
ain
-0.1
619
.63
2402
/7/2
22.
4818
.98
2.50
3.26
-0.7
684
Life
Ass
uran
ce02
/8/1
556
0399
Lega
l & G
ener
al G
rpU
K24
9251
9M
anul
ife F
inan
cial
Can
ada
-0.3
210
.65
4902
/6/1
03.
1318
.50
4.04
1.51
2.53
84Li
fe A
ssur
ance
02/8
/15
5603
99Le
gal &
Gen
eral
Grp
UK
2573
209
Met
life
US
A-0
.20
18.1
613
02/7
/30
2.42
17.8
64.
040.
753.
2984
Life
Ass
uran
ce02
/8/2
225
1637
8Li
ncol
n N
atio
nal C
pU
SA
2492
519
Man
ulife
Fin
anci
alC
anad
a-0
.32
5.84
7802
/5/7
2.86
15.1
03.
331.
561.
77
19.
Exa
mp
les
of
case
s w
her
e th
e si
gn
als
to c
lose
pai
rs
hav
e ap
pea
red
Not
e: T
he a
bove
exh
ibit
show
s on
ly p
airs
clo
sed
with
in 1
5 da
ys b
efor
e 22
Aug
ust.
Sou
rce:
Nom
ura
Nomura Quantitative Research
Global pairs trading26
Reference
• Evan G. Gatev, William N. Goetzmann and K. Geert Rouwenhorst, 1999, “Pairs trading:performance of a relative value arbitrage rule”
• Takashi Suwabe, 2000, “Global Equity Investment in a Borderless World: From CountryFactor to Global Industry Factor”, Security Analysts Journal (Japan), October 2001
Nomura Quantitative Research
Global pairs trading 27
Nomura Quantitative Research
An affiliate of Nomura Securities International, Inc.-Nomura Securities Co., Ltd.-has an agreement with FTSE to promote andmarket FTSE indices.
For any US equity cited in this research report with a Nomura rating, please note that a three-year daily stock price chart anddistribution of Nomura ratings by category and investment banking relationship, current as of the last calendar quarter, isavailable upon request. Please contact your Nomura Securities International Inc. registered representative.
Nomura Equity ResearchAdditional information available upon request.
This publication contains material that has been prepared by one or more of the following Nomura entities: Nomura Securities Co., Ltd. (“NSC”) and Nomura Research Institute, Ltd., Tokyo, Japan; NomuraInternational plc and Nomura Research Institute Europe, Limited, United Kingdom; Nomura Securities International, Inc. (“NSI”) and Nomura Research Institute America, Inc., New York, NY; NomuraInternational (Hong Kong) Ltd. and Nomura Securities (Hong Kong) Ltd., Hong Kong; Nomura Singapore Ltd., Singapore; Capital Nomura Securities Public Co., Ltd., Bangkok, Thailand; NomuraAustralia Ltd., Australia; P.T. Nomura Indonesia, Indonesia; Nomura Advisory Services (Malaysia) Sdn. Bhd., Malaysia; Nomura Securities Co., Ltd., Taipei, Taiwan; Nomura Securities Co., Ltd., Seoul,Korea or Nomura Securities Philippines, Inc., Philippines. This material is (i) for your private information, and we are not soliciting any action based upon it; (ii) not to be construed as an offer to sellor a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal; and (iii) is based upon information that we consider reliable, but we do not representthat it is accurate or complete, and it should not be relied upon as such. Opinions expressed are current opinions as of the date appearing on this material only and the information, including the opinionscontained herein are subject to change without notice. Affiliates and/or subsidiaries of Nomura Holdings, Inc. (collectively referred to as the “Nomura Group”) may from time to time perform investmentbanking or other services (including acting as advisor, manager or lender) for, or solicit investment banking or other business from, companies mentioned herein. The Nomura Group, its officers, directorsand employees, including persons involved in the preparation or issuance of this material may, from time to time, have long or short positions in, and buy or sell (or make a market in), the securities, orderivatives (including options) thereof, of companies mentioned herein. The Nomura Group may act as a market maker and are willing to buy and sell certain Japanese equities for their institutional clients.NSC and other non-US members of the Nomura Group, their officers, directors and employees may, to the extent it relates to non-U.S. issuers and is permitted by applicable law, have acted upon or usedthis material, prior to or immediately following its publication. Foreign currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or priceof, or income derived from the investment. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. The securitiesdescribed herein may not have been registered under the U.S. Securities Act of 1933, and, in such case, may not be offered or sold in the United States or to U.S. persons unless they have been registeredunder such Act, or except in compliance with an exemption from the registration requirements of such Act. Unless governing law permits otherwise, you must contact a Nomura entity in your homejurisdiction if you want to use our services in effecting a transaction in the securities mentioned in this material. This publication has been approved for distribution in the United Kingdom by NomuraInternational plc, which is regulated by The Financial Services Authority (“FSA”). It is intended only for investors who are “market counterparties” or “intermediate customers” as defined by FSA, andmay not, therefore, be redistributed to other classes of investors. This publication has also been approved for distribution in Hong Kong by Nomura International (Hong Kong) Ltd.. NSI acceptsresponsibility for the contents of this material when distributed in the United States. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributedwithout NSI’s prior written consent. Further information on any of the securities mentioned herein may be obtained upon request. If this publication has been distributed by electronic transmission, suchas e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sendertherefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version.
Nomura Japanese Equity Research is available electronically on NOMURA.COM, MULTEX, BLOOMBERG and FIRST CALLRESEARCH DIRECT. Contact your Nomura representative for information.
Please read this important disclosure.For all the companies mentioned in this report, foreign affiliates of Nomura Securities International, Inc., may have either (1)managed or co-managed a public offering of the company’s securities in the past 12 months, (2) received compensation forinvestment banking services from the company in the past 12 months, and/or (3) expect to receive or intend to seek compensationfor investment banking services from the company in the next three months. The investment banking relationships of the foreignaffiliates of Nomura Securities International, Inc., will be disclosed no later than 6 November 2002.
