Get ready for stat arb redux

by

Arbitrageurs tap new sources
of volatility to stage a comeback

Rumors of the demise of statistical arb have been greatly exaggerated. In fact, most of the strategy's managers have defied conventional wisdom - and the historical odds - by mounting a comeback of sorts in 2006, smack in the midst of a low-volatility market environment that would traditionally be unfavorable for the strategy.

Stat-arb giants like DE Shaw, SAC Capital and Highbridge Capital Management have upped exposure to the sector in absolute dollar terms, already adding to 2006 returns. Highbridge was up 7.6% in Class A