For all the Pair Traders out there, Do you tend to trade stocks of the same company that are traded on different exchanges?? I want to find more information about pair trading from traders that actually do it. It seems like the opportunities out there are already being exploited by hedge funds and it would be hard to harness a pair trade. What software do you use?? Do you tend to trade companies in the same industry?? Or indexes? Any experiences from pair traders would be helpful.. Thanks
That is called arbitrage, and yes, very few of those opportunities. Pair trading, also called statistical arbitrage, works on the premise that similar assets SHOULD be priced similarly. For instance, MS and MER are similar businesses, if one stock deviates from the other, one would buy the undervalued stock, sell the over valued stock, and HOPE for a reversion.