Pairs trading using trend following and not mean reversion.
January 5, 2025 by
Trend-Following Pairs Trading
Instead of betting on the convergence of two assets, trend-following pairs trading capitalizes on the divergence between them. This approach involves:
- Identifying two correlated assets that are beginning to diverge
- Going long on the outperforming asset and short on the underperforming one
- Riding the trend until it shows signs of reversal
This strategy assumes that the divergence will continue before potentially reverting.
Yesterday, Friday, January 3, 2024, I gave an example of AMD vs NVDA.
Today, Monday, January 6, 2024, the continuing battle between all EV and partial EV, TSLA vs TM:
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