![]() ![]() ![]() The positions are based on the current market price of both the stocks and their standard deviation. In this short period, the trader can take the opportunity to go long on one of the financial instruments while shorting the other. But, on certain occasions, one of the instruments may go through a short period of deviation from another in terms of price. In the case of a pairs trading strategy, the two stocks or the financial instruments need to be trending at a similar mean price and remain close to each other. The pairs trading strategy uses statistical and technical analysis to seek out potential market-neutral profits. Pairs trading was first introduced in the mid-1980s by a group of technical analyst researchers that were employed by Morgan Stanley. ![]() Select a pair which will give you good statistical arbitrage opportunities over time.The key challenges in pairs trading are to: it doesn’t matter whether the market is trending upwards or downwards, the two open positions for each stock hedge against each other. In a pairs trading strategy, usually, a pair of stocks is traded in a market-neutral strategy, i.e. ![]() What is the logic behind pairs trading?. ![]()
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