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Finance Dictionary and Glossary of Investment Terms
The establishment of a long position in one stock and a short position in another stock at the same time. A pairs trade minimizes the effect of larger market trends and emphasize the performance of one stock relative to another.
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.