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Pair trading is a trading strategy that involves taking opposite positions in two securities that are highly correlated. The goal is to profit from the price difference between the two securities.

How it works

Find two securities with a high correlation.

Wait for the price relationship between the two to deviate from historical norms.

Buy the undervalued security and sell the overvalued security.

When the securities return to their historical correlation, a profit is made.

When to use

Pair trading can be used by both short-term traders and long-term investors. It can be used to hedge risk

SPEAKERDharmendra RajbharTrainer

PGDM in finance, having 5+ experience in Equity, commodities , forex analysis and trading.

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