There is a question that asks what can go wrong with a pair trade their answer says that the stock that you short goes up and the one you go long goes down. Basically you don’t capture a relative advantage. I agree with this, wrote it too But I also added that a pair trade might not lead to an equity neutral position. would you include that or not?
i think what i’m about to ask is a dumb question… but if you put on a pair trade, are you trying to achieve an equity neutral position? in the beginning, it would always be neutral, provided the initiating positions are the same amount, but in the end you’re trying to be long the stock that will outperform the stock you’re short… i may be overthinking this.
I think you can use it in many ways The most extreme in capturing relative value, I THINK would be shorting a gold stock and going long a gold stock- that way you would not be exposed to market and industry effects another trade you could go long retailers and short gold companies you would not be exposed to market risk but keep industry risk - expect retailers to do better than gold companies and company X to be better than company Y.
very vague topic… though isn’t a pairs trade supposed to be long/short from same industry? no reason that a long retailer, short gold trade should be market neutral. (and sorry didn’t read earlier entries other than seeing the gold/retailer)
yes you are right pair trade should be same industry the other example would be a long/short without being pair trade
florinpop Wrote: ------------------------------------------------------- > yes you are right pair trade should be same > industry > > the other example would be a long/short without > being pair trade i did read the entries now… i just think the curriculum is vague. if i short retailer, go long retailer, have i really neutralized the market’s risk?? not trying to come down on you, florinpop. i just think they just scratch the surface but pretend it’s much more.