Pair trading is often framed as a statistical exercise: identify a spread, measure its deviation, and trade the reversion. But in practice, the real challenge is not finding divergence – it is correctly interpreting it. This problem is where using sentiment scores in stock pair trading comes in to play.
A widening spread can mean one of two things:
Traditional stat arb models –
… Read More →For those of you who are new to this site, stock Pair Trading involves simultaneously entering LONG (i.e. BUYING) and entering SHORT (i.e. SELLING) two “paired” stocks.
Stock Pair Trading has been shown to provide protection from market crashes, controlled risk, low correlation to the market averages and ability to generate significant and consistent returns. Multiple recent research studies have demonstrated returns to be in the range of 2%-4% per month*, on a 4:1 leverage basis, over more than a decade.
Add in the use of Cointegrated Stock Pairs and the historical returns look even stronger**.
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