"Pairs traders limit directional risk by going long on one stock (or other instrument) in a particular sector or industry, and pairing that trade with an equal-dollar-value (or dollar neutral) short position in a correlated stock (for example long $10,000 on stock A and short $10,000 on stock B), typically within the same sector or industry. Because it does not matter which direction the market moves, directional risk is mitigated. Profits depend on the difference in price change between the two instruments, regardless of the market’s direction, and are realized through a gain in the net position."
http://www.investopedia.com/universi...-investing.asp
http://www.investopedia.com/universi...-investing.asp
My Threads: Trading is as simple as 1-2-3, Highest Open / Lowest Open Trade