Risk Arbitrage
Generally agreed upon term for merger arbitrage which is buying the stock of the accquiree while shorting the stock of the acquirer in a pre – announced deal.
The term arbitrage is sometimes used much more broadly, even including simultaneous actions in empirically correlated securities. Sometimes, there is not a strong logical basis for why this correlation must always exist (there is merely the knowledge that, in the past, it has almost always existed). This type of activity, especially when highly leveraged, can (and has) resulted in devastating losses.