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.
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[][b]Entry Criteria[/b]:
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[][b]Long[/b]: Beta-adjusted spread < Mean - 2StdDev
[][b]Short[/b]: Beta-adjusted spread > Mean + 2StdDev
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[][b]Long/Short[/b]: Both sides.
[][b]Exit Criteria[/b]:
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[][b]Long[/b]: Exit when spread approaches mean
[][b]Short[/b]: Exit when spread approaches mean
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[][b]Stops[/b]: Yes, percent stop-loss.
[][b]Default Values[/b]:
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[][b]CandleType[/b] = TimeSpan.FromMinutes(5)
[][b]LookbackPeriod[/b] = 20
[][b]StopLossPercent[/b] = 2m
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[][b]Filters[/b]:
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[]Category: Arbitrage
[]Direction: Both
[]Indicators: Beta-adjusted spread
[]Stops: Yes
[]Complexity: Advanced
[]Timeframe: Intraday
[]Seasonality: No
[]Neural networks: No
[]Divergence: Yes
[*]Risk Level: High
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