statistical arbitrage and hedgingWhen analyzing data systematically and statistically, one noticeable aspect is the inverse relation between two assets that has a fundamental and economic basis, which may not be obvious otherwise (technical analysis), trading inverse correlations, a manager or a trader will buy one security and sell another at the same time. The idea is that if one security goes up in price, the other will go down, allowing them to profit from the difference in their movements. For example, suppose Capitol Federal Financial and JPMorgan stocks usually move in opposite directions. In that case, a trader might buy Capitol Federal's stock and sell JPMorgan's stock if they expect JPMorgan to decline and Capitol Federal to rise. Large investors, like hedge funds, use this strategy to reduce risk. By having both a long and a short position, they aren't betting on the overall market going up or down but rather on the relative performance between the two stocks. They also use advanced models and automated systems to spot and act on these opportunities quickly. This kind of trading helps them make money even when the broader market isn't moving much because they're focusing on the specific relationship between the two stocks, not on the market as a whole. For example, if a hedge fund expects a rough patch for big banks but thinks a smaller, more conservative bank like Capitol Federal will do well, they might sell shares of JPMorgan and buy shares of Capitol Federal at the same time. This way, they profit from the difference in performance between the two. the execution of such trade is not easy, the goal is to create a market-neutral position, where the potential gains and losses from each stock balance each other out, to determine the percentage of each stock to buy or sell is based on their volatility and prices, (correlations can be historic but at any given time in the future, they might decorrelate) I spot a lot of these across sectors with a quick analysis some machine learning n a couple of statistical techniques to confirm them,
