Relatively Speaking, About Some Pair Trade Setups

4 August 2017 | Dwaine van Vuuren
 


A short missive today, as we are headed out early bells tomorrow to Johannesburg for the 2nd Bitcoin Trading & Investing Bootcamp in Sandton on Saturday. There are just 2 seats left, and you can contact lloyd@sharenet.co.za or 021-700 4838 to book a spot. The course outline can be found here.

Today, we want to focus on some pairs trades. As you will read in page 18 of our Relatives Trading Guide we state that the goal is to match two trading vehicles that are highly correlated, trading one long and the other short when the pair’s price ratio diverges "x" number of standard deviations. If the pair reverts to its mean trend, a profit is made on one or both positions. Pairs trading has the potential to achieve profits through simple and relatively low-risk positions. The pairs trade is market-neutral, meaning the direction of the overall market does not affect its win or loss.

The strategy’s profit is derived from the difference in price change between the two instruments, rather than from the direction in which each moves. Therefore, a profit can be realized if the long position goes up more than the short, or the short position goes down more than the long (in a perfect situation, the long position will rise and the short position will fall, but this is not a requirement for making a profit). It is possible for pairs traders to profit during a variety of market conditions, including periods when the market goes up, down or sideways, and during periods of either low or high volatility.

The SAPPI+MONDI Pairs trade seems to be starting to play out so long SAP and short MND

(Click image to enlarge) image1

NED+SBK Pairs trade also looks like it may gather momentum so long NED and short SBK

(Click image to enlarge) image2

MTN and VOD look interesting, and this implies long MTN and short VOD

(Click image to enlarge) image3

Enjoy!

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Dwaine
Dwaine van Vuuren
Retail-side Research
RecessionAlert, Sharenet Analytics

Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.


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