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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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Statistical arbitrage is rooted in mathematics to deliver alpha independent of traditional risk factors.
This is where predictive modeling can help lower the risk of statistical arbitrage. While individuals certainly have better knowledge of their own behavior, they are not likely to have firmly quantified the healthcare implications of those factors.
The algorithm is designed to allow traders to execute any North American pair combination, supporting all major pair trade types such as risk arbitrage, statistical arbitrage, switch trades and cross-border trades.
Celent's Jaswal notes that TSE's Arrowhead trading platform has already led to an increase in the local adoption of high-frequency trading strategies and he expects more high-frequency and statistical arbitrage trading between alternative venues in the Japanese equities markets.
Kevin Dean, chief marketing officer at Interxion, said many banks' statistical arbitrage desks and high-frequency traders are currently locating their trading platforms in Stockholm as demand for co-location and proximity hosting services increases.
Statistical arbitrage trading - This involves the selection of correlated instruments or baskets and identification of price discrepancies between them.

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