Some pairs have correlations that are mean reverting. In this study we focused on IWM-QQQ. If a pair has a mean reverting correlation, it does not mean that the pair price itself will mean revert. Trading a pair with high correlation means a pair with less overall risk. With the Russell-NASDAQ pair at a historically low correlation, the risk of trading that pair now is rather high. However, since their correlations seem to mean revert, the risk (volatility) of that pair in the near future may decrease.
Podchaser is the ultimate destination for podcast data, search, and discovery. Learn More