Statistical Arbitrage

Statistical arbitrage is the relative-value arbitrage strategy that is most similar to pairs trading. The strategy involves analyzing various groups of stocks that are statistically related and then buying the ones that are un dervalued for the long portfolio and selling short those that are overvalued for the short portfolio. This is another example of a mean reversion strategy, because the manager believes that over time the two groups will converge back to their historically established mean...

Moving Average Convergence Divergence MACD

Convergence Trading

The moving average convergence divergence (MACD) indicator combines some of the principles of oscillators, like those already discussed, with a dual moving average crossover approach. It uses two metrics, both represented with lines. The faster of the two lines (called the MACD line) is the difference between exponentially smoothed moving averages of closing prices the 12- and 26-day moving averages are most commonly used. The slower of the two lines is the exponentially smooth average of the...