  \begin{abstract} In this paper, we integrated the statistical arbitrage
strategy, pairs trading, into the Black-Litterman model and constructed
efficient mean-variance portfolios. Typically, pairs trading underperforms
under volatile or distressed market condition because the selected asset pairs
fail to revert to equilibrium within the investment horizon. By enhancing this
strategy with the Black-Litterman portfolio optimization, we achieved superior
performance compared to the S\&P 500 market index under both normal and extreme
market conditions. Furthermore, this research presents an innovative idea of
incorporating traditional pairs trading strategies into the portfolio
optimization framework in a scalable and systematic manner.
