# Pairs Trading

*Trading & Technical Analysis — Finicade finance glossary*

Pairs trading goes long one security and short a related one when their historical relationship stretches, betting it reverts. It's the simplest market-neutral strategy and the ancestor of statistical arbitrage. Its risk is that the relationship broke rather than stretched — the two companies diverged for a real reason — which is a loss that widens exactly as the signal says to add.

**Also known as:** pair trade, relative value trade, cointegration trading

**Related terms:** [Statistical Arbitrage](https://finicade.com/glossary/statistical-arbitrage), [Mean Reversion](https://finicade.com/glossary/mean-reversion), [Correlation](https://finicade.com/glossary/correlation), [Short Selling](https://finicade.com/glossary/short-selling), [Hedge Fund](https://finicade.com/glossary/hedge-fund)

Source: https://finicade.com/glossary/pairs-trading