Statistical Arbitrage

Core idea

Statistical arbitrage uses systematic models to identify temporary relative mispricing across many instruments. Portfolios typically diversify small signals while controlling market, sector, and factor exposures.

Implementation

Out-of-sample stability and realistic turnover assumptions matter more than an impressive in-sample fit.

Primary risk

Model decay, crowding, and correlated exits can turn many small positions into one concentrated loss.

Frequently asked questions

What is statistical arbitrage?

Statistical arbitrage uses systematic models to identify temporary relative mispricing across many instruments. Portfolios typically diversify small signals while controlling market, sector, and factor exposures.

What is the main risk of statistical arbitrage?

Model decay, crowding, and correlated exits can turn many small positions into one concentrated loss.