Pairs Trade

An investment strategy in which one owns two stocks in the same industry. In general, these stocks follow the same pattern; that is, both go up or both go down. When the pattern diverges (that is, when one increases in price and the other decreases), the investor sells the stock that has increased and buys the stock that has decreased. The idea behind a pairs trade is that the stocks will generally meet back in the middle, allowing the investor to profit from the purchase of the stock that had decreased and the sale of the one that had increased.

pairs trade

An investment strategy that matches a short position with a comparable long position in the stock of a company in the same industry. For example, an investor might buy 500 shares of Delta Airlines and sell short a comparable principal amount of the stock of UAL, Inc. The offsetting positions allow an investor to attempt to profit by selecting the best value in an industry without worrying about changes in the valuation of the sector or the overall market.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

References in periodicals archive

Pairs trade in Ensco (ESV) and Rowan Companies options.

Pairs trade in Ensco (ESV) and Rowan Companies options

economy?' We'll get a better idea on Friday with the payrolls." Thebault recommends buying assets linked to volatility indexes as a hedge against expected swings in the coming months, and suggests setting up long-short pairs trade strategies by buying European stocks and short-selling U.S.

Pairs trades, a market neutral strategy which matches a long position with a short position in two stocks of the same sector, creates a hedge against the overall market as the investor bets solely on the gap between the performance of the two stocks.

Europe shares dip as growth fears eclipse ECB hopes

157.7K opened total and adds to a 102.5K sold to open at 62c on 8/6 verses stock for $4.62 (pairs trade against long RRC Jan2020 25 calls).

Notable new position opened in Chesapeake Energy longer-term options Monday

Size exceeds open interest for both contracts, with premium roughly equal suggesting a long-term pairs trade that is long RRC and short CHK for a relatively long 529-day term.

Upside calls in Chesapeake and Range Resources lead Monday's blocks

In this paper, we investigate the risk and return of a portfolio consisting of many pairs trades all selected based on cointegration.

Selection of a portfolio of pairs based on cointegration: a statistical arbitrage strategy/Selecao de uma carteira de pares de acoes usando cointegracao: uma estrategia de arbitragem estatistica

The algo, first announced by BAML in June, enables clients to execute US equity pairs trades. The tool contains SPREAD, RATIO, INVSPREAD and INVRATIO strategies with customisable parameters and summary views, and is available alongside the broker's other electronic trading tools for global equities, options and futures.

New BAML pairs algo added to RealTick EMS

In addition, FlexSpread allows buy-side traders to execute pairs strategies, cross-currency equity pairs trades and risk arbitrage to trade in response to a takeover deal.

FlexTrade unveils cross-currency tool