#TradingPairs101 In trading, "pairs" refers to a strategy of simultaneously buying and selling two assets with the expectation that their prices will converge back to their historical correlation. This strategy, also known as "pairs trading," is a form of statistical arbitrage that leverages the idea that correlated assets will eventually move in tandem.

Key Concepts:

Correlation:

Pairs trading relies on the idea that two assets have a historically strong correlation, meaning their prices tend to move together.

Deviation:

The strategy is based on the assumption that this correlation can temporarily break down, creating a divergence in price.

Convergence:

The core belief is that the two assets will eventually return to their historical correlation, closing the price gap.

Market-Neutral:

Pairs trading is often considered market-neutral, as the overall position in the market is zero (buying one asset and shorting another).