{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,20]],"date-time":"2026-10-20T08:39:31Z","timestamp":1792485571408,"version":"4.5.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>Pairs trading's canonical empirical result \u2014 Gatev, Goetzmann, and Rouwenhorst's (2006) finding that a mechanical rule trading the spread between historically co-moving U.S. equity pairs earns significant risk-adjusted excess returns \u2014 rests on an economic structure specific to equities: a common market factor driving broad co-movement, against which a residual, idiosyncratic spread between two similar stocks can plausibly mean-revert. This paper asks whether that logic transfers to floating G10 foreign-exchange cross-rates, which lack an analogous common-market-factor structure and instead co-move, if at all, through shared exposure to a common third currency (the USD leg both EURUSD and GBPUSD are quoted against). Using the walk-forward, cost-realistic, multiple-testing-aware protocol developed in Paper 1 of this series, we test a rolling-hedge-ratio, z-score-triggered spread-reversion rule across the three USDquote G10 major combinations (EURUSD-GBPUSD, EURUSD-AUDUSD, GBPUSD-AUDUSD) at five timeframes, and \u2014 resolving the open question this program's original scaffold left unaddressed \u2014 run a formal Engle and Granger (1987) two-step cointegration test on the actual price data across all C(4,2) = 6 pairwise combinations of the four G10 majors at all five timeframes (30 tests total). The cointegration screen finds essentially a null result: 4 of 30 tests are nominally significant at 5%, close to the ~1.5 expected by chance, all clustering just under the conventional threshold (p = 0.019\u20130.047) rather than showing the small p-values (p &amp;lt; 0.001) genuine cointegration would produce, and none surviving even a mild Bonferroni correction. Of the six tradeable combinations that produced enough trades to evaluate, only two rest on a nominally cointegrated relationship, and those two trade no better than the other four \u2014 if anything, the single worst-performing combination (EURUSD-GBPUSD H1, expectancy \u22120.0357R) is one of the nominally cointegrated ones. Trading results across all six combinations are uniformly, narrowly unprofitable: expectancy ranges from \u22120.0096R to \u22120.0357R, an order of magnitude closer to breakeven than the single-instrument directional strategies evaluated elsewhere in this series, no combination approaches conventional significance (permutation p-values 0.74\u20131.00), and the Deflated Sharpe Ratio is 0.00 throughout. The more economically interesting finding is risk-shaped rather than return-shaped: maximum drawdown across the six combinations ranges from 1.26% to 3.52% (median ~2.1%) \u2014 below the 5th percentile (5.16%) of maximum drawdowns across the 164 directional combinations evaluated in Papers 1 through 4 (median 16.4%). We characterize this low-volatility, near-zero-expectancy return stream quantitatively, discuss why its standalone risk-adjusted metrics (Sharpe, Sortino, Calmar) are nonetheless poor rather than attractive, and argue \u2014 citing standard portfolio-construction logic rather than this pair's own standalone performance \u2014 that a return stream of this shape can still carry genuine diversification value alongside directional strategies, a hypothesis this paper flags but does not itself test, reserving the formal cross-strategy correlation analysis for Paper 10.<\/jats:p>","DOI":"10.2139\/ssrn.7630898","type":"posted-content","created":{"date-parts":[[2026,10,20]],"date-time":"2026-10-20T08:01:32Z","timestamp":1792483292000},"source":"Crossref","is-referenced-by-count":0,"title":["Convergence Trades in a Floating World: Pairs Trading and Relative Value Among G10 Currencies The Deflated Alpha Series"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0001-1754-4472","authenticated-orcid":true,"given":"Shepherd","family":"Mahadzva","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,20]],"date-time":"2026-10-20T08:01:32Z","timestamp":1792483292000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7630898"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7630898","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}