Statistical arbitrage

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Statistical arbitrage
(also stat arb) /stəˈtɪstɪkəl ˈɑːbɪtrɪʤ/ (n.)
A class of quantitative trading strategy short-term trading strategies that seek out temporary discrepancies in market prices of similar instruments, and bet upon them converging on the presumption of mean reversion and the basic soundness, over time, of the efficient markets hypothesis, supported by mathematical brainboxery, overwhelming computational horsepower, and lighting fast, and cheap, access to trading platforms.

When it works, it works a charm: the top ranking stat arb hedge funds make extraordinary returns, especially when they drive hard bargains with their prime brokers to secure cheap, committed funding. When it doesn’t work it can be a disaster, as the Nobel laureates and masters of the universe who founded Long Term Capital Management, and then promptly blew it up, after the unseemly short term of four-and-a-half years.