--- title: "What is statistical arbitrage | RupeeCase" description: "Statistical arbitrage trades many small, hedged bets on prices that have moved away from a statistical relation, and it expects them to move back." source_url: "https://www.rupeecase.com/learn/questions/what-is-statistical-arbitrage" --- A statistical arbitrage trade is only as good as the costs and fills at its last step The stages of a relative value rule, from the relation to the net result. A map of method, not a result. Source: RupeeCase method map; NSE contract specifications. As of 16 Oct 2026. Statistical arbitrage is a family of methods, not one trade. A model finds prices that have moved away from a relation learned from history, such as a pair, a basket or a shared factor, and takes a hedged position that profits if the relation comes back. The word arbitrage is loose: nothing here is riskless, and the position can lose while the relation holds. Three inputs do most of the work. There must be a relation that was stable in the past, a measure of how far today's price sits from it, and a rule for entering, exiting and sizing. Pair trading is the simplest case, and the pair pages on the half life and z-score show the standard measures. In India the practical problems matter more than the theory. A retail account cannot generally hold a cash short overnight, so the hedge is usually a futures contract. Lot sizes make the hedge ratio lumpy, expiries force rolls, and F&O bans block new positions in one leg. Each of these changes the trade that was tested. The flow below lists the stages of such a system. Read the last stage first: the cost and execution stage, where a paper edge meets brokerage, STT, slippage and the time it takes to fill both legs. A relation that held in the sample can end after a rule change, a sector shock or a shift in who trades the stocks. Treat a relation as a hypothesis that needs fresh data, not as a fact about the market. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) What is statistical arbitrage?Statistical arbitrage trades many small, hedged bets on prices that have moved away from a statistical relation, and it expects them to move back. Its edge per trade is small and depends on costs, fills and rolls, so a result on paper can disappear once those are charged. LGo deeper ## Where Learn teaches this. [Go deeperPair trading intuition: correlation is not cointegration8 min, Intermediate](/learn/path-18/module-18-3-pair-trading-intuition)[Go deeperCointegration toolkit: Engle Granger, ADF, half life and z score10 min, Advanced](/learn/path-18/module-18-7-cointegration-toolkit) SSources ## Go to the source. 3 sources, NSE the most cited The publisher of each source listed below. Source: Module undefined source list. 1. [Engle and Granger (1987), Co-integration and error correction, Econometrica](https://doi.org/10.2307/1913236) Paper 2. [NSE, equity derivatives contract specifications (lots, expiries and settlement used in the examples)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE 3. [SEBI, norms for sharing and usage of price data for educational purposes (30 day lag, from 8 May 2026)](https://www.sebi.gov.in/legal/circulars/may-2026/norms-for-sharing-and-usage-of-price-data-for-educational-purposes_101293.html) SEBI ?Questions people ask ## Related questions. 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Scan the code, fillFill one short form, and join my WhatsApp group. Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. New to RupeeCase? [Getting started](/getting-started) [See the terminal](/terminal) [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.