Qn. 1 / 5

Att - 0 / 5

Submit All

What is the core principle behind pair trading?

Identifying stocks with similar price movements

Predicting future stock prices based on historical data

Exploiting temporary price discrepancies between co-integrated stocks

Investing in stocks with high beta values

Qn. 2 / 5

Att - 0 / 5

Submit All

In the pair trading equation y = M*x + c + ε, what does 'ε' represent?

The intercept of the regression line

The beta coefficient of the independent stock

The residual or error term of the equation

The correlation coefficient between the two stocks

Qn. 3 / 5

Att - 0 / 5

Submit All

Why is the stationarity of residuals crucial in pair trading?

It ensures that the intercept of the regression line remains constant

It allows for the application of normal distribution properties to the residuals

It guarantees that the beta coefficient will remain stable over time

It indicates a strong correlation between the two stocks being traded

Qn. 4 / 5

Att - 0 / 5

Submit All

What is the typical trigger for initiating a long trade in a pair trading strategy?

When the residuals hit +2 standard deviations

When the residuals hit +3 standard deviations

When the residuals hit -2 standard deviations

When the residuals hit 0 standard deviations

Qn. 5 / 5

Att - 0 / 5

Submit All

In pair trading, what does going long on a pair imply?

Buying stock 'y' and selling stock 'x'

Selling stock 'y' and buying stock 'x'

Buying both stock 'y' and stock 'x'

Selling both stock 'y' and stock 'x'