  Pairs trading is a strategy based on exploiting mean reversion in prices of
securities. It has been shown to generate significant excess returns, but its
profitability has dropped significantly in recent periods. We employ the most
common distance and cointegration methods on US equities from 1990 to 2020
including the Covid-19 crisis. The strategy overall fails to outperform the
market benchmark even with hyperparameter tuning, but it performs very strongly
during bear markets. Furthermore, we demonstrate that market factors have a
strong relationship with the optimal parametrization for the strategy, and
adjustments are appropriate for modern market conditions.
