Statistical Arbitrage

Statistical arbitrage is an investment strategy that uses mathematical models to identify price discrepancies between related assets, usually in financial markets. Traders analyze historical price data to find patterns and predict future movements. When prices diverge from their expected relationship, they buy the undervalued asset and sell the overvalued one, anticipating that their prices will converge again. This strategy relies on statistical analysis and often involves high-frequency trading to exploit small price differences quickly. Overall, it seeks to make profits with minimal risk based on statistical probabilities rather than fundamental factors.