Here are the examples of reversion strategies:
- Mean reversion strategy: This strategy assumes that the value of a price/return will return to the average value.
- Unlike the mean reversion strategy, pair trading—mean reversion is based on the correlation between two instruments. If a pair of stocks already has a high correlation and, at some point, the correlation is diminished, it will come back to the original level (correlation mean value). If the stock with the lower price drops, we can long this stock and short the other stock of this pair.