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1. Relative Value Arbitrage
Relative value arbitrage is a type of statistical arbitrage trading that bets
on the price convergence of two securities.
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2. How to arbitrage trading pairs that are at a
relative value to each other?
Frist step: identify that your trading Second step: follow this set of self-
pair long/short have the following depending trading rules:
properties:
• Begin to build the position once
• Historic high correlation. the pair starts converging again
• Mean reversion ratio close to after its hits the divergence value
cero. of two standard deviations. (beta
• Low volatility. spread ~ 0.2)
• Historic reverting trends based • Close the position once the
on market changing events like spread hits the mean or ...
earnings report. • A stop loss of 20%.
• If the position is older than 50
• Similar valuation metrics like (PE trading days, and still open.
&Yield). • If the position becomes more than
• Same market sector. 10% of your whole portfolio.
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3. Relative Value Arbitrage Graphic
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