Modules for Traders
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3 key terms to remember when pair trading
00:54 Mins Read
Learn some key terms about pair trading, so you can understand the strategy better.
Right. So, let's decode some jargon. First, we have the differential. This is the difference between the closing prices of the two stocks in the pair. Next, we have the price ratio. This is the ratio of the closing price of one stock divided by the closing price of the other. And lastly, we have the correlation. Correlation measures the degree to which both the stocks in a pair are related. It is numerically expressed by the correlation coefficient Which falls between minus 1 and plus 1. So, you're now caught up with the basic jargon And the basic statistics. Head to the next chapter to learn more about this trading strategy.