#TradingPairs101

Understanding Pairs Trade

Pairs trading was first introduced in the mid-1980s by a group of technical analyst researchers that were employed by Morgan Stanley, the multinational investment bank and financial services company. The pairs trade strategy uses statistical and technical analysis to seek out potential market-neutral profits.

Key Takeaways

A pairs trade is a trading strategy that involves matching a long position with a short position in two stocks with a high correlation.

Pairs trading was first introduced in the mid-1980s by a group of technical analyst researchers.

A pairs trade strategy is based on the historical correlation of two securities; the securities in a pairs trade must have a high positive correlation, which is the primary driver behind the strategy’s profits.