[Notes] Little about Pair Trading

Definition: Pair trading is a market-neutral trading strategy that matches a long position with a short position in a pair of highly correlated instruments.

Remark: Pairs traders wait for weakness in correlation and then go long the under-performer while simultaneously short selling the over-performer, closing the positions as the relationship returns to statistical norms.

How does this strategy work? : The strategys profit is derived from the difference in price change between the two instruments, rather than from the direction each moves. More specifically, a profit can be realized if the long position goes up more than the short, or the short position goes down more than the long (in a perfect situation, the long position rises and the short position falls, thats not a requirement for making a profit).

Reference:

Pairs trade - Wikipedia

https://www.investopedia.com/university/guide-pairs-trading/Pairs trade - Wikipedia?

en.wikipedia.orgGuide to Pairs Trading

Pairs Trade

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