Team Members:
This project demonstrates a pairs trading strategy developed by a team at SMU Traders focusing on Lockheed Martin (LMT) and General Dynamics (GD). The team created a predictive algorithm using z-scores to identify trading opportunities when the highly correlated defense stocks diverge. Using Python and statistical analysis, they implemented a market-neutral strategy that achieved positive returns (10% during the down market of 2022) independent of market movements, using parameters of 0.4-0.8 z-scores for entry/exit points. The model showed a correlation of 0.7 between the two stocks and proved effective in maintaining consistent returns despite market volatility.