Arbitrage Pricing Theory - APT

Overly simply, the Arbitrage Pricing Theory presumes that there is in fact a "fair" price or market-clearing price for a given security. And that there's a linear equation that can accurately model and measure the "perfect price." Once it's measured, the arbitrageur (what a word!) will sell the overpriced stock and buy the underpriced one and get paid "risklessly" for adding intelligence and liquidity to the marketplace.

It's a concept. In reality, it's not something heavily relied upon. Too many variables in predicting any one CEO's tantrum-scandal which "changes everything."