1. Pairs Trading: Introduction
  2. Pairs Trading: Market Neutral Investing
  3. Pairs Trading: Correlation
  4. Arbitrage and Pairs Trading
  5. Fundamental and Technical Analysis for Pairs Trading
  6. Pairs Trade Example
  7. Pairs Trading: Risks
  8. Disadvantages of Pairs Trading
  9. Advantages of Pairs Trading
  10. Pairs Trading: Conclusion

Pairs trading is a market-neutral investment strategy that seeks profits from the difference in price changes between two related instruments. The idea is that if two instruments have a historical tendency to move together, they will likely move together again after any periods of divergence. It’s when prices re-converge that pairs traders make their profits.

Pairs trading: Right for your portfolio?

While pairs trading is not without risks, it does boast several advantages, including controlled risk (a pairs trade is essentially an automatic hedge), profit regardless of market direction, no directional risk and smaller drawdowns. Having well-researched strategies, based on accurate historical modeling and the proper interpretation of results, can help ensure you identify truly correlated pairs, locate high-probability trading setups and use proper money management to exit trades – and look for the next pairs trading opportunity.

Related Articles
  1. Trading

    Guide to Pairs Trading

    Pairs traders go long on an under-performer while simultaneously going short on the over-performer.
  2. Trading

    Understanding Forex Quotes

    When trading in forex, all currencies are quoted in pairs. Find out how to read these pairs and what it means when you buy and sell them.
  3. Trading

    Using Currency Correlations To Your Advantage

    Knowing the relationships between pairs can help control risk exposure and maximize profits.
  4. Investing

    An Introduction To Pairs Trading With ETFs

    This strategy can help investors reduce portfolio volatility and make money in uncertain markets.
Trading Center