Backtesting and Performance pairs trading: copula versus distance approaches

In a universe of the historical constituents of the Euro STOXX 50, we implement two pairs trading strategies and compare their performance: in the first strategy, we use copula functions which were fitted to the logarithmic returns of each pair to emit trading signals, while in the second strategy the trading signals are emitted if the spread between the normalized prices of each pair has surpassed a certain threshold. Only the first strategy shows to be profitable with a relatively worse performance when compared to the benchmark, but at lower levels of volatility.