In the uncertain financial market, the investors spare no effort to find a way to make as much profit as possible. The investors considered that some similarities could be found among several stocks and those similarities can be used to predict the stock performance. Therefore, investors select two stocks which have the most stable relationship and use the existing data from these two stocks to create the model which is used to give suggestions to investors about how to invest in each stock based on another stock’s performance.
This strategy is called pair trading strategy. The investors believe that a pair of stocks which have stable relationships have a constant difference between their stock prices and the underpriced stock should be bought and the overpriced stock should be sold. Therefore, The profit can be gained when the difference goes far away from that constant value because the difference will eventually go back to the constant value. In our project, the stock section that we select to analyze is technology stocks.
