Quantitative#029

Pair Trading

Buy one outcome and short a closely related one when the usual gap between their prices stretches too far (for example, 'Candidate A wins' should always trade below 'A's party wins', so if that gap widens abnormally you bet it snaps back). You make money on the spread converging back to its normal relationship, regardless of which way the overall market moves.

What you need to run it

Pair selection based on historical price correlation
Z-score or cointegration model for entry/exit signals
Separate risk limits per pair and aggregate

Where this applies

Markets on Polymarket where pair trading is the natural play:

'Will the Democratic nominee win the 2028 presidency?' vs 'Will a Democrat win the 2028 presidency?'
'Will the Yankees win the 2027 World Series?' vs 'Will an American League team win the 2027 World Series?'
'Will Manchester City win the 2026-27 Premier League?' vs 'Will a non-City club win the 2026-27 Premier League?'

Capabilities this demands

Model / quantCustom code / APIRisk management

At a glance

CategoryQuantitative

Requirements3

CapabilitiesModel / quant, Custom code / API, Risk management

VenuePolymarket (CLOB, Polygon)

Build it

Related quantitative strategies

This is documentation, not advice. Poly Research & Robotics publishes how these strategies work because the method should be checkable — not as a recommendation to trade them. See the full strategy database (297 strategies) or the data feeds directory.