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 + 2StdDev
[]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