This strategy seeks to exploit pricing differences between two securities while neutralizing overall market beta. By adjusting positions based on each asset's beta to a common index, the portfolio aims to remain insensitive to broad market moves.
A long spread goes long the asset with lower beta-adjusted price and shorts the other when the spread deviates beyond two standard deviations. A short spread does the reverse when the spread is above the mean. Trades are closed once the beta-adjusted spread reverts toward its average.
Beta neutral arbitrage is common among hedge funds looking for relative value without taking directional risk. A stop-loss is applied if the spread continues to widen instead of converging.
- Entry Criteria:
- Long: Beta-adjusted spread < Mean - 2*StdDev
- Short: Beta-adjusted spread > Mean + 2*StdDev
- Long/Short: Both sides.
- Exit Criteria:
- Long: Exit when spread approaches mean
- Short: Exit when spread approaches mean
- Stops: Yes, percent stop-loss.
- Default Values:
- CandleType = TimeSpan.FromMinutes(5)
- LookbackPeriod = 20
- StopLossPercent = 2m
- Filters:
- Category: Arbitrage
- Direction: Both
- Indicators: Beta-adjusted spread
- Stops: Yes
- Complexity: Advanced
- Timeframe: Intraday
- Seasonality: No
- Neural networks: No
- Divergence: Yes
- Risk Level: High