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.

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