What is mean reversion?Mean Reversion
The tendency of a price or spread to drift back to its average after straying from normal.
Learn “mean reversion” in an animated lesson
- Arbitrage StrategiesPairs Trading: Statistical Arbitrage
Two stocks that have long moved together drift too far apart: buy the cheap one, sell the expensive one, and wait for them to come back together. It's a bet that the relationship holds.
- Quant BasicsMomentum and Reversal
Stocks that did well over the past few months tend to stay a bit stronger; but those that just shot up last month often give it back the next. The lookback period decides whether you're buying momentum or reversal.
- Quant BasicsBuilding Strategies from Rule Blocks
Turn "gut feel" into rules: buy when one condition is true, sell when another is. Snap a few blocks together and let historical prices give you the answer.
Related terms
See how “mean reversion” works for yourself with an animation you can drag and play.
Go to “Pairs Trading: Statistical Arbitrage”