Spread between two stocks cumulative returns

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Reference no: EM131503777

In the pairs trade we are betting that the spread between two stocks’ cumulative returns:

a. has no memory, i.e. the spread on day t has no bearing on the spread on day t + n for n > 0.

b. generally tends to widen over time.

c. behaves like a geometric Brownian motion.

d. tends to revert to some mean spread.

Reference no: EM131503777

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