What Is The Pair Trading Strategy And How Does It Work?

Find out how pair trading strategy works, and how to select correlated assets to gain profits through different price movements.

• Question 01

  What is pair trading primarily used for?

  Your Answer

  • A. Speculating on short-term price fluctuations

  • B. Taking advantage of relative price movements between correlated assets

  • C. Investing in unrelated assets for diversification

  • D. Timing market trends for maximum profit

• Question 01

  What scenario does pair trading aim to capitalize on?

  Your Answer

  • A. High market volatility

  • B. A divergence from historical correlation between two assets

  • C. Stable market conditions

  • D. Long-term price trends

• Question 01

  Which type of trading strategy focuses on changes in volatility between paired assets?

  Your Answer

  • A. Trend following

  • B. Breakout trading

  • C. Volatility-based trading

  • D. Value investing

• Question 01

  When might event-based trading be employed in pair trading?

  Your Answer

  • A. During stable market conditions

  • B. Around specific events or news announcements affecting correlated assets differently

  • C. When there is no significant news or events impacting the market

  • D. When both assets in the pair move in perfect correlation

• Question 01

  How do traders determine entry and exit points in pair trading?

  Your Answer

  • A. Based on random price movements

  • B. By guessing potential market direction

  • C. Using technical and fundamental analysis to identify deviations from historical mean ratios

  • D. Setting fixed entry and exit points without analysis

• Question 01

  What role do statistical tools and modeling play in advanced pair trading strategies?

  Your Answer

  • A. They have no significant impact

  • B. They provide insights into market behavior and aid in the development of robust trading strategies

  • C. They decrease transaction costs

  • D. They increase trading speed

• Question 01

  What is cointegration analysis used for in pair trading?

  Your Answer

  • A. Identifying short-term price movements

  • B. Evaluating market volatility

  • C. Examining the long-term equilibrium relationship between assets

  • D. Speculating on news announcements

• Question 01

  What does pair trading aim to minimize exposure to?

  Your Answer

  • A. Short-term market trends

  • B. Broader market trends

  • C. Volatility between assets

  • D. Historical correlation between assets