Share your opinions and experiences on Stock Trading.
5/1/2010 1:01:34 PM
Nirm
Posts: 0
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The pairs trade or pair trading, also known as market neutral, was developed in the late 1980s by quantitative analysts and pioneered by Gerald Bamberger while at Morgan Stanley. With the help of others at Morgan Stanley at the time, including Nunzio Tartaglia, Bamberger found that certain securities, often competitors in the same sector, were correlated in their day-to-day price movements.
When the correlation broke down, i.e. one stock traded up while the other traded down, they would sell the outperforming stock and buy the underperforming one, betting that the "spread" between the two would eventually converge. A notable pair trader was hedge fund Long-Term Capital Management.
Regards,
Nirmala
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