Based on relative mispricing between a pair of stocks, pairs trading strategies create excess returns if the spread between two normally comoving stocks is away from its equilibrium path and is assumed to be mean reverting, i. In this situation, pairs trading suggests to take a long position in the relative undervalued stock, while the relative overvalued stock should be shortened.
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The formation of the pairs ensues from a cointegration analysis of the historical prices. Consequently, pairs trading represents a form of statistical arbitrage where econometric time series models are applied to identify trading signals. However, fundamental economic reasons might cause simple pairs trading signals to be wrong.
Think of a situation in which a profit warning of one of the two stocks entails the persistant widening of the spread, whereas for the other no new information is circulated. Under these circumstances, betting on the spread to revert to its historical mean would imply a loss. Unable to display preview.
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A Regime-Switching Relative Value Arbitrage Rule
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What are the benefits of the Arbinox Arbitrage Trading System? Which subscription plan is the best for me? Latest Blog Articles to keep in Touch Bitfinex exchange overview Advantages and Disadvantages. Impressive differences in trade strategies and their need on the stock exchange of crypto in The sale of cryptocurrencies becomes the most profitable when suitable strategies are used.
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An interesting new cryptocurrency Ripple: a guide for investors This year was very successful for the most popular cryptocurrencies. High risk of negative slippage when copying deals. Trading Days:. Latest trade:. Trades per week:. Avg holding time:. Watch the video tutorials about trading signals on YouTube. Arbitrage Trading Low DD. Martinus van de Venne.
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