Statistical Arbitrage Overview
- As a trading strategy, statistical arbitrage is a heavily quantitative and computational approach to equity trading. Other asset classes (fixed income, commodities or currencies) can be used as well.
- In deterministic arbitrage, a sure profit can be obtained from being long some securities and short others.
- In statistical arbitrage, there is a statistical mispricing of one or more assets based on the expected value of these assets.
- By investigating historical data and extracting the appropriate statistics, you can conclude if there is persistence in the returns produced.
Practically, statistical arbitrage refers to the identification of strategies that historically produced alpha (excess returns over a benchmark) by examining supportive statistics. As a result, statistical arbitrage is heavily relying on back-testing and analyzing historical time series which might require excessive computational power.
In this blog, we are going to post numerous ideas/strategies for implementation and the respective statistics & performance analytics.