HFT Strategy: STATISTICAL ARBITRAGE – PAIRS TRADING

Statistical Arbitrage is exactly what the name suggests. In Stat Arb, you (algo) basically calculate the past/historical correlation between two stocks or two assets, and try to find dislocations or price discrepancies between them.

Here is an excellent example of Stat Arb:

AAPL - S&P

 

A Stat Arb on AAPL and the S&P can be executed as follows:

BUY [LONG] – AAPL

SELL [SHORT] – S&P

HFTs (Algos) do this all the time.

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