From the course: Algorithmic Trading and Stocks Essential Training

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Common quantitative rules and strategies

Common quantitative rules and strategies

From the course: Algorithmic Trading and Stocks Essential Training

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Common quantitative rules and strategies

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- [Instructor] When it comes to algorithmic trading, there are a number of strategies that are used. The simplest trading strategies are based on a concept called mean reversion. The idea is that basically a relationship that exists, any time there's a deviation from that relationship, eventually things will kind of revert to the mean. One example of this will be in pairs trades. So we might look at, for instance, the Ford Motor Company versus General Motors. Well, the factors that affect Ford are likely also to affect GM. If it's a good economy, probably both stocks and companies are doing well. If it's a bad economy, probably they're not doing well. We might think about Lowe's and Home Depot, Walgreens and CVS, Pepsi and Coke, things like that. We're looking for stocks where there seems to be a stable relationship over time. So in this chart, what we see is Ford and their price change over time in yellow and then GM…

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