pairs trade


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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.
References in periodicals archive ?
One particular pairs trade that has become very popular over the last two years is trading the differential between US crude oil and UK crude oil.
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.
If oil continues to firm the ensuing dollar weakness may see both pairs trade lower throughout the day.
In today's column, we're going to make this option play even more evident by examining a theoretical pairs trade on the Claymore/Delta Global Shipping (NYSE: SEA) exchange-traded fund (ETF) and component General Maritime Corporation (NYSE: GMR).
Pairs trades were developed in the late 1980s by quantitative analysts and help hedge sector - and market risk.