Pair Trading Strategy Based on Stock Price Differences

Abstract

This paper explores a pair trading strategy based on stock price differences, aiming to construct a market-neutral trading strategy that achieves arbitrage profits by analyzing the price differences between stocks. First, the paper reviews the basic principles of pair trading and analyzes the main factors influencing stock price differences, including fundamental, technical, and other multidimensional market factors. Next, the paper establishes a pair selection method based on price differences and validates the effectiveness of the strategy under different market conditions through empirical analysis. The study demonstrates that the pair trading strategy based on stock price differences can effectively capture price imbalances in the market and has strong risk control and return potential. Finally, the paper discusses the advantages and limitations of the strategy and suggests directions for future optimization.