rog1111 - I'm a little confused as to why you'd want to pair trade MSFT/SBUX. My understanding of a market neutral pair is that you choose 2 stocks from the same sector so that the same news/geopolitical events affect both stocks in a similar way. e.g. 2 retailers or 2 financial. By picking two stocks in different groups or sectors you could be doubly wrong, with the short stock rising and the long stock falling, although I suspect that youd still be adequately hedged the next time someone flys a plane into a building.
As a first step, I'm going to look at correlated stocks within the same sector using "match-maker" within AIQ to find stocks with a high degree of correlation over 12 months, and then look at the ones with greatest and least RS to the sector. This should be a simple approach that should be relatively easy to back-test as well, which is a bonus.
An alternative approach is the sector rotation approach mentioned by TheBramble ( and hopefully this is what he means) where you look for strong and weak sectors, and then short the weak stock in the weakening sector, and go long the stronger stock in a strengthening sector, BUT ensuring a high degree of correlation if possible. My initial thoughts are that you should be looking at sector charts first, and looking for buy/sell signals in the sector charts before looking for pairs within the sectors.
Thanks again for bringing this up Niall - opens up a new field to explore.