Strategy

• Pair return: each day, the long stock's return minus the short stock's, with equal money on both sides, compounded. Prices are adjusted for splits.
• The gap is the log of the price ratio. Gap (z) is how far today's gap is from its 60-day average, in standard deviations.
• Half-life: how fast past gaps closed, from a regression of daily changes on the gap (a Dickey-Fuller test says how reliably it closes).
• Reversal score (0–100): how stretched the gap is (up to 40), whether it has started to close (20), the ratio's RSI overextended and turning (15), an unusually long winning streak (10), and how reliably gaps closed before (15), minus points when the two stop moving together.
• Costs in the backtest: 0.015% fee per trade, 0.20% transaction tax on each sale (including the short sale) and 3% a year to borrow the short.
• Themes are pairs we picked to follow one idea (long the side the theme favours). "Worked for a year" pairs are found among the 150 largest stocks: up at least 25% over the year, the long side winning at least 9 of 12 months, never down more than 15% from a high, and still up over the last six months. A pair that worked last year can stop working.
• Tradability: both legs must trade at least ₩5B a day on average over the last 20 days to be monitored; max size per leg is 10% of the thinner leg’s average day; we flag stocks with little stock on loan, short selling paused for overheating, a trading suspension or a recent watch-list designation.

Past prices, a fixed rule and simple costs. Not a recommendation. Short selling in Korea has extra rules and costs and may not be available to you.