A proper Risk Management is mandatory for Pair Trading.Ĭheck out the other popular Excel sheets posted in this blog here. Although this is a low risk strategy, yet it should be practiced with caution.
Also, there is a backtesting feature in the Excel sheet through which you can check the performance in different pair of Stocks. In this post, we are giving away a Pair Trading Excel sheet which would help you automate this strategy. The basic assumption is that the long position would profit more than the short position when the co-relation is strong again, or vice versa. They go long in one of the stock and go short in another. Pair Traders watch the co-related stocks over time and take action when they see any weakness in the co-relation. For example: Banking stocks are always highly co-related since there long term movement depends on the same economic or news based factors. Usually the stock or commodities selected for Pair Trading are from the same sector and moves together during most of the market events. Pair Trading is a market neutral strategy where two highly co-related instruments are bought and sold together when there is a certain degree of deviation in their co-relation.
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