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Engle-Granger cointegration test on every pair in your universe. Cointegrated pairs have a spread that mean-reverts — when the spread strays > 2σ from its mean, classical stat-arb is to short the rich leg, long the cheap leg, wait for convergence.
💡 Plain English: Some stock pairs move together — like Coke and Pepsi. When their spread temporarily widens, classical stat-arb is to short the rich one and long the cheap one, then wait for convergence.