One type of statistical arbitrage that investors like to use is called pairs trading. This strategy hinges on the relationship between two related or unrelated equities. Also, the method is generally used in a sideways market. The equity pair is characterized by a strong statistical correlation to one another based on long-term trading histories.
Investors wait for a five to seven percent divergence to occur which lasts for at least two to three days. At this point, the equity that lies on the bottom of the divergence is bought while simultaneously selling short the equity existing above the divergence. Whenever the pair resumes its statistical historical correlation to one another, a net profit is realized from the two trades.