#TradingPairs101 pairs trading is an investment strategy that involves simultaneously opening positions in two correlated assets, seeking to profit from the price difference between them. Essentially, it is based on the idea that if the prices of two correlated assets diverge, they will eventually converge, allowing the investor to profit by closing the positions.

How it works:

1. Identification of correlated pairs:

The goal is to identify two assets (stocks, indices, currencies, etc.) that historically move similarly.

2. Correlation analysis:

Technical and fundamental analysis is used to assess the relationship between the prices of the assets and determine if the current difference is significant.

3. Long and short position:

One asset is bought (long position) and the other correlated asset is sold (short position) in a proportion considered optimal.

4. Divergence and convergence:

It is expected that the prices of the assets will temporarily diverge but then converge again.

5. Closing positions:

The long position is closed (selling the purchased asset) and the short position (buying the sold asset) when the prices converge, profiting from the price difference.