What is a Pairs Trade?
How Does a Pairs Trade Work?
Let's say John Doe buys
However, if Ford starts to rise while General Motors starts to fall, the strategy requires John to sell Ford and buy more GM. The theory is that the stocks eventually "synch up" and resume their tandem trading patterns, which means John can by buying the that is temporarily depressed (GM) and selling the stock that is temporarily peaking (Ford).
Why Does a Pairs Trade Matter?
Pairs trades allow investors to mitigate the effects of broad