when people talk about stat arb, people often mean pair trading. in fact, besides pair trading, I can hardly figure out what else is also stat arb.
There are two sides to a trade, enter exit. If your entry is an [potential] arb but your exit is "statistical", it it stat arb. It doesn't necessarily involve to different symbols.
Now it seems like everything is referred to as stat arb. It could be pairs, market making, hft arb strategies or pretty much any blackbox strategy.
I have heard little of this strategy, but I know that is very reliable and allows good control of the market.
pair trading imo is not arb in any possible way. if you ever plot whatever you trading from this pair($ value or % or whatever spread)-you will see that you actually trading same old TREND. it's no better than trading trend on single stock. it could be a MARKET NEUTRAL,but no way it's an arb. http://www.investopedia.com/terms/a/arbitrage.asp something like buying and selling trading same stock on different exchanges(let say US and Canada)-this would be an arbitrage.
while stat-arb is a pretty abused term in trading (as can be witnessed in previous posters responses), wikipedia actually does a pretty good job of defining it: http://en.wikipedia.org/wiki/Statistical_arbitrage "In academic literature, "statistical arbitrage" is opposed to (deterministic) arbitrage.[1] In deterministic arbitrage, a sure profit can be obtained from being long some securities and short others. In statistical arbitrage, there is a statistical mispricing of one or more assets based on the expected value of these assets. In other words, statistical arbitrage conjectures statistical mispricings of price relationships that are true in expectation, in the long run when repeating a trading strategy." to answer your question, a simple example of stat-arb moving beyond 2 symbols would be trading an equity ETF vs a small basket. Eg., SPY vs GM/IBM. the more symbols you add to the basket which replicate the ETF (or whatever it is you're trading against), the more the strategy moves away from being 'stat-arb' to being 'pure-arb', or more academically, the more deterministic the 'arb' becomes.
Pairs trading <u>is not</u> stat arb, it is pairs trading. Stat arb is where a statistical model of a single price history is used to arbitrage one security. Whereas pairs trading uses TWO instruments or derivatives to model probabilistic trading opportunities.