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Statistical Arbitrage

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Statistical Arbitrage
In the context of hedge funds, a style of management that employs complex statistical models that try to capture small abnormalities in a security's intraday return.

Arbitrage
An investment practice that attempts to profit from inefficiencies in price by making transactions that offset each other. For example, one may buy a security at a low price and, within a few seconds, re-sell it to a willing buyer at a higher price. Arbitrageurs can keep prices relatively stable as markets try to resist their attempts at price exploitation. Arbitrageurs often use computer programs because their transactions can be complex and occur in rapid succession.


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With this movement towards individual purchasers comes an increased risk of statistical arbitrage for an insurer, meaning the products being sold are mispriced to the long-run detriment of the insurer.
Given all the problems faced by hedge funds - counterparty risk becoming real, borrowing rates shooting up, statistical arbitrage coming to an end and last but not the least, change in regulation, they have done very well.
Sondhi joins Chi-X Global from Nomura, where he worked in its Statistical Arbitrage Prime Services business.
 
 
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