#TradingPairs101

*Understanding Trading Pairs*

Trading pairs involve matching a long position with a short position on highly correlated securities. This market-neutral strategy aims to profit from temporary price deviations between two related assets. To succeed, traders must identify suitable pairs, time entries and exits effectively, and manage risk.

*Key Concepts:*

- *Correlation Coefficient*: Measures the strength of the relationship between two assets, ranging from -1.0 to +1.0

- *Mean Reversion*: Assumes asset prices will revert to their historical average

- *Cointegration*: Statistical technique to identify pairs with long-term relationships

*Benefits:*

- *Profit Potential*: Generate returns in various market conditions

- *Risk Mitigation*: Hedge against market volatility and reduce exposure

- *Diversification*: Add non-correlated returns to a portfolio¹ ²