Statistical Arbitrage is known as Risk Arbitrage

Statistical arbitrage is not correct arbitrage since it does not bring a certain profit; in fact many statistical arbitrageurs have finished large fatalities. The term is frequently abbreviated to statarb. Even though statistical arbitrage is often described as being synonymous with pair trading, it is probably more precise to speak that the terms partly cover. Only because of it is not possible to lay down an unqualified regulation when tradition varies as a good deal as it does.

It is known as Risk arbitrage as well, Statistical arbitrage is very frequently overlapped while buy or short couple trading as well as other complicated quantitative methods, where highly developed trading technologies are implemented. Statistical arbitrage trading frequently involves a black box methodology. This is a computer mock-up which is specially programmed to trigger a buy or sell signal when certain financial variables are met. For example a buy signal could compare a stock previous P/E to the 90 day moving average P/E or use certain sophisticated fundamental as well as technical analysis to trigger buy and sell orders directly to the exchange.

These models are very often created by professional scientists and mathematicians who are skilled at back testing using advanced computer programs. Statistical arbitrage is also involved with the miss pricing of derivatives where the derivative is selling away from its quantitatively derived fair value price.