Works in All Market Conditions
| Strategy Type | Statistical Arbitrage - Market Neutral |
| Market Outlook | Works in All Market Conditions |
| Risk Level | Low to Moderate (when properly hedged) |
| Time Horizon | Short to Medium Term (3-20 days typical) |
| Best Conditions | Mean-reverting spreads, stable correlations, normal market volatility |
| Avoid When | Structural breaks, M&A announcements, extreme correlation breakdown, major divergent news |
| Private Banks | HDFCBANK vs ICICIBANK • 0.85-0.92 • Similar business model, market cap, customer base |
| It Majors | TCS vs INFOSYS • 0.88-0.94 • Both IT services giants, similar revenue mix, USD exposure |
| Auto Leaders | TATAMOTORS vs M&M • 0.75-0.85 • Auto sector, SUV/EV competition, domestic focus |
| Steel Majors | TATASTEEL vs JSWSTEEL • 0.82-0.90 • Steel producers, similar commodity exposure, domestic market |
| Pharma Generics | SUNPHARMA vs CIPLA • 0.70-0.82 • Generic pharma, US market exposure, domestic branded |
| Fmcg Giants | HINDUNILVR vs ITC • 0.55-0.70 • FMCG leaders, different business mix, valuation gap |
| Psu Banks | SBIN vs BANKBARODA • 0.80-0.88 • PSU banks, government ownership, similar NPA cycles |
| Oil Marketing | BPCL vs HPCL • 0.85-0.92 • OMCs, government pricing, similar refining margins |
| Cement | ULTRACEMCO vs SHREECEM • 0.75-0.85 • Cement majors, similar regional exposure, capacity |
| Index Pair | NIFTY vs BANKNIFTY • 0.90-0.95 • Bank Nifty is 35% of Nifty, high correlation but different beta |
| Spread | Price difference or ratio between two stocks |
| Z Score | Number of standard deviations from mean spread |
| Cointegration | Long-term equilibrium relationship between prices |
| Hedge Ratio | Ratio of quantities to make pair market-neutral |
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