Definitions for "Pairs Trading"
An investment strategy that seeks to identify two companies with similar characteristics whose equity securities are currently trading at a price relationship outside their historical trading range. The strategy involves buying the undervalued security, and short selling the overvalued security.
The strategy of matching a long position with a short position in two stocks in the exact same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock that you are short in.
Statistical arbitrage based on trading long-short pairs of stocks.