Welcome to pairs trading, the strategy that’s less about following the market drum beat and more about conducting your band. Here, you take a long position in one stock, and its partner in crime gets the short straw. It’s like having twins with opposite personalities – you love them equally but for different reasons.

Picking Your Dynamic Duo: It’s about finding two stocks that mirror each other’s moves, usually from the same industry. They’re like dance partners who’ve been stepping on each other’s toes for years. When they suddenly forget their dance steps (i.e., their prices diverge), that’s your cue.

The Art of the Spread: In the world of pairs trading, ‘spread’ isn’t something you find in a bakery. It’s the gap between your two stocks. When this gap gets unusually wide, it’s not just interesting – it’s potentially profitable. You buy the laggard and short the leader, hoping they’ll snap back into their usual rhythm.