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Chapter 4 - Long/Short Equity > 4.6 PAIRS TRADING
4.6 PAIRS TRADING
Pairs trading is a relative value position created by matching a long position on a stock with a short position on another stock belonging to the same industry. If the two investments have the same size, the position will have a zero net exposure. Otherwise, it will be a long or short net exposure, reflecting the manager’s bias towards the market.
In order to understand how interesting a pairs trading strategy may be, we describe how it works by way of a practical example featuring Wal-Mart and Albertson’s supermarkets.
Wal-Mart Stores, Inc. is a retailing business with supermarkets and hypermarkets selling a variety of goods from clothes to household articles and appliances, electronics and hardware. Wal-Mart is present in the United States, Canada, Argentina, Brazil, Germany, Mexico, Korea, United Kingdom and Puerto Rico.
