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Adalberto Sanchez
@adalberto
"Mean Reversion" Strategy: Concept: It is based on the idea that asset prices tend to revert to their historical average. Application: Assets are bought when the price is below its historical average and sold when it is above. Difference: While cross-sectional momentum seeks to take advantage of the continuation of trends, this strategy bets that trends will reverse. "Mean Reversion" is based on the premise that asset prices, after deviating significantly from their historical average, tend to return to that average. Imagine a pendulum: when it moves away from its central point, gravity pushes it back to the center. Similarly, in "Mean Reversion" it is assumed that there are forces in the market that "pull" prices towards their historical average.
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