#TradingPairs101

### 🔄 Trading Pairs 101 (100 words)

**Pairs trading** is a market-neutral strategy that involves buying (long) one asset while simultaneously selling (short) another historically correlated asset (e.g., Coca-Cola vs. PepsiCo). Traders profit when their prices **re-converge after temporary divergence**, betting on statistical mean reversion .

**Key mechanics**:

1. **Identify pairs** with high correlation (e.g., >0.80) using statistical tools .

2. **Long the underperformer**, **short the outperformer** when their price spread widens .

3. **Exit** when prices revert to historical norms .

**Risks**: Permanent decorrelation (e.g., fundamental changes) and margin requirements for short selling .