Pair
Pair is a financial term used to describe two investments that are closely related to each other. It is a strategy used by investors to reduce risk and maximize returns. The idea behind pair trading is to buy one security while simultaneously selling another security that is related to it. This strategy is based on the assumption that the two securities will move in opposite directions, allowing the investor to make a profit regardless of the direction of the market.
History of Pair Trading
Pair trading has been around since the early 1990s, when it was first developed by hedge fund managers. It was initially used as a way to hedge against market volatility, but has since become a popular trading strategy for investors looking to capitalize on market inefficiencies. The strategy has become increasingly popular in recent years due to the rise of algorithmic trading, which allows investors to quickly identify and capitalize on mispriced securities.
Comparison Table
| Strategy | Risk | Return |
|---|---|---|
| Pair Trading | Low | High |
| Buy and Hold | High | Low |
Summary
Pair trading is a popular strategy used by investors to reduce risk and maximize returns. The strategy is based on the assumption that two related securities will move in opposite directions, allowing the investor to make a profit regardless of the direction of the market. Pair trading can be a profitable strategy, but it is important to understand the risks involved and to have a solid understanding of the markets before attempting to use this strategy. For more information on pair trading, investors can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Hedge Funds
- Algorithmic Trading
- Market Inefficiencies
- Risk Management
- Portfolio Management
- Options Trading
- Short Selling
- Arbitrage
- Technical Analysis
- Fundamental Analysis
