How to Read ADF Values in Pair Trading – Simple Guide for Beginners
"Learn what ADF test values really mean in pair trading. What do –2.5, –3.5, or –4.0+ tell you about a pair’s strength? Quick guide with examples." Learn what ADF test values mean in pair trading: –3.5 or –4.0+ signals strong mean reversion. Simple guide with examples & trading checklist. Free NSE pairs tool.
How to Read ADF Values in Pair Trading – Simple Guide
January 2026 – QuantPair Team
The ADF (Augmented Dickey-Fuller) test gives you a number that shows how likely the price spread between two stocks will return to its average level.
Rule of thumb: The more negative the number, the better the pair.
ADF Value Guide
| ADF Value | What It Means | Pair Quality | Reversion Speed | Rough Win Rate |
|---|---|---|---|---|
| Above –2.5 | Weak or no evidence | Poor / avoid | Slow or never | Below 65% |
| –2.6 to –3.0 | Marginal evidence | Borderline | Medium-slow (8–20 days) | 65–75% |
| –3.1 to –3.4 | Good evidence | Solid pair | Medium (5–12 days) | 75–82% |
| –3.5 to –3.9 | Very strong evidence | Excellent pair | Fast (3–8 days) | 80–88% |
| –4.0 or lower | Extremely strong evidence | Elite / rare pair | Very fast (2–6 days) | 85–92%+ |
Simple Rule of Thumb
- ADF < –3.0 → Good pair (worth watching)
- ADF < –3.5 → Excellent pair (high conviction)
- ADF < –4.0 → Elite pair – prioritize these!
Why a more negative ADF is better
- Faster mean reversion → quicker profits
- Higher chance the trade will work
- Lower risk of getting stuck in a bad spread
That’s why many serious pair traders pay special attention to pairs with ADF values below –3.5 — they are statistically the most reliable.
Quick Checklist Before Trading a Pair
YES – Consider trading if:- ADF is –3.5 or lower
- Z-score is extreme (outside ±2)
- Correlation between the stocks is high (>0.85)
- No major news/events this week
- ADF is above –3.0
- Z-score is near zero
- Upcoming earnings, RBI policy, or big news
Scan daily after 5 PM IST for the latest strong pairs.
Questions? Join our Telegram channel or comment below.
Happy trading!
QuantPair Team
Educational use only. Not financial advice. Past performance is not indicative of future results.