#TradingPairs101

The **pair trading** is a **market-neutral** trading strategy that involves buying one asset while short selling another **correlated** asset. The goal is to take advantage of temporary price discrepancies between the two assets.

### How does it work?

1. **Asset selection**: Choose two historically correlated assets (for example, two stocks from the same sector or two cryptocurrencies).

2. **Correlation analysis**: Monitor the price discrepancies between these assets.

3. **Opening positions**: When one of the assets becomes **overvalued** compared to the other, short sell the overvalued asset and buy the undervalued asset.

4. **Closing positions**: When the prices return to their usual correlation, close the positions and realize a profit.

### Advantages and Risks

✅ **Advantages**:

- **Market-neutral** strategy, thus less exposed to overall fluctuations.

- Can be used on **stocks, cryptos, currencies**, and other assets.

- Exploits **temporary price** discrepancies.

⚠️ **Risks**:

- The correlation between the assets may **change** and not return to its historical level.

- Requires **good statistical analysis** and rigorous risk management.