2. Covariance tells us how two variables vary together; which is nothing more than unnormalized correlation (see [https://www.khanacademy.org/math/probability/regression/regression-correlation/v/covariance-and-the-regression-line](https://www.khanacademy.org/math/probability/regression/regression-correlation/v/covariance-and-the-regression-line)):![Time for action – trading correlated pairs](img/4154_04_04.jpg)
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7. Another important point is whether the two stocks under consideration are in sync or not. Two stocks are considered out of sync if their difference is two standard deviations from the mean of the differences.