What is Statistical Arbitrage or StatArb?
Statistical Arbitrage or StatArb is an arbitrage trading strategy to profit from pricing inefficiencies in an equity market. It is a broader scale application of pairs trading strategy, and is based on the idea that prices of stocks return to historical norm or market normal levels. Unlike pure arbitrage strategy, statarb involves substantial risk.
Statistical arbitrage is a market neutral strategy as the long and short positions are carefully matched for eliminating stock beta and market risks. Usually the portfolio is constituted for tens or hundreds or different stocks, which are carefully chosen according to industry, beta, growth, previous performance, etc. Statistical arbitrage opportunities are figured out through mathematical modeling methods. Often the stocks are scored based on mean reversion principle, where stocks which should be held long or which are underperformed recently receive high scores and stocks which should be shorted or which outperformed recently receive low scores.
Statistical arbitrage strategy mainly favors hedge funds and institutional traders as it require good data mining, price analysis and price matching capabilities and automated trading systems. More over, the position size must be very high and trading costs must be very low because of very low per share return.
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Online Futures Trading, Online Forex Trading
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Statistical arbitrage is a market neutral strategy as the long and short positions are carefully matched for eliminating stock beta and market risks. Usually the portfolio is constituted for tens or hundreds or different stocks, which are carefully chosen according to industry, beta, growth, previous performance, etc. Statistical arbitrage opportunities are figured out through mathematical modeling methods. Often the stocks are scored based on mean reversion principle, where stocks which should be held long or which are underperformed recently receive high scores and stocks which should be shorted or which outperformed recently receive low scores.
Statistical arbitrage strategy mainly favors hedge funds and institutional traders as it require good data mining, price analysis and price matching capabilities and automated trading systems. More over, the position size must be very high and trading costs must be very low because of very low per share return.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by Daniel Pipitone at
5:13 AM
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