Category Archives: Trading Tips

Top 30 US Equities Pairs: Trade of the Month March 2018

Precision Drilling Corporation (PDS:NYSE) vs.

Superior Energy Services, Inc. (SPN:NYSE)

Profit of $925.30 in 48 calendar days on $10,000/leg.  28% return on CFD margin (6:1 leverage)

Summary Profiles (Source: Yahoo! Finance, Company websites)

Precision Drilling Corporation provides oil and natural gas drilling and related services and products. The company operates in two segments, Contract Drilling Services, and Completion and Production Services. The Contract Drilling Services segment offers onshore well drilling services to exploration and production companies in the oil and natural gas industry. As of December 31, 2016, this segment operated 255 land drilling rigs, including 135 in Canada; 103 in the United States et. al. The Completion and Production Services segment offers completion and workover services, and ancillary services to oil and natural gas exploration and production companies. This segment also engages in the rental of oilfield surface equipment, and wellsite accommodations. Precision Drilling Corporation was founded in 1951 and is headquartered in Calgary, Canada.

Superior Energy Services, Inc. provides oilfield services and equipment to oil and natural gas exploration and production companies in the United States, the Gulf of Mexico, and internationally. The company operates in four segments: Drilling Products and Services, Onshore Completion and Workover Services, Production Services, and Technical Solutions. Superior Energy Services, Inc. was founded in 1991 and is headquartered in Houston, Texas.

PDS:NYSE vs. SPN:NYSE
Summary Fundamental Comparison
(Source: Yahoo! Finance)
Financial Statements & Performance
Income Statement PDS SPN
Revenue (ttm) 1.01B 1.87B
Quarterly Revenue Growth (yoy) 14.70% 40.20%
Gross Profit (ttm) 395.05M 475.38M
EBITDA 231.11M 179.87M
Net Income Avi to Common (ttm) -100.9M -187.01M
Quarterly Earnings Growth (yoy) N/A N/A
Balance Sheet
Total Cash (mrq) 49.73M 172M
Total Debt (mrq) 1.32B 1.28B
Total Debt/Equity (mrq) 95.59 113.01
Current Ratio (mrq) 2.11 2.03
Book Value Per Share (mrq) 4.72 7.39
Profitability
Profit Margin -9.99% -10.99%
Operating Margin (ttm) -5.51% -13.81%
Management Effectiveness
Return on Assets (ttm) -1.11% -4.92%
Return on Equity (ttm) -7.00% -15.35%
Valuation Measures PDS SPN
Market Cap (intraday) (USD billions) 0.812 1.3
Enterprise Value (USD billions) 2.11 2.59
Trailing P/E N/A N/A
Forward P/E 1 -277 -36.65
PEG Ratio (5 yr expected) 1 0.76 0.31
Price/Sales (ttm) 0.80x 0.69x
Price/Book (mrq) 0.59x 1.14x
Enterprise Value/Revenue 3 2.09x 1.38x
Enterprise Value/EBITDA 6 9.14x 14.41x

Current Three-Year Backtest Using PairTrade Finder PRO Top 30 Settings

(Yahoo! Finance Historic API datafeed)

17 trades in 3 years.  Avg. Correlation 74%, Cointegration 0.24 (low), CAGR 38%, Max DD 17%, Percent of Winning Trades 88%, Avg. Net Profit per Trade $953.  Average Days in Trade 26 days.  Great equity curve in the last 12 months.  Good ratio line, lots of back and forth.  Besides the low cointegration, pair looks excellent.

PDS/SPN Relative Performance Last 12 Months

Entry Trade Signal EOD 19 January 2018 at -2.17 sd (IQFeed):

Short Leg: Sell Short 2673 shares of PDS at $3.75 = $9,998.69

Long Leg: Buy Long 921 shares of SPN at $10.82 = $9,990.13

Check News:

PDS – On 15 January 2018 PDS announced an updated investor presentation with revised guidance, this was three full trading days before the 19 Jan 2018 EOD signal.  Stock was pretty much unchanged.  Likely the impact of the presentation was priced in by then. No other news impacting fundamentals in the 10 days prior to the Entry Signal.

SPN – ON 19 January 2018 (signal date) SPN announced that its Q4 2017 results presentation would take place one month hence (no fundamental impact). No other fundamental value affecting news in the 10 days prior to the EOD 19 Jan 2018 Entry Signal.

Check Earnings Announcements & Dividends:

PDS:

15 Feb 2018:  Q4 2017 Earnings Announcement

PDS did not pay a dividend in 2016 and 2017, none announced for 2018.

  • Results announcement of 15 Feb 2018 is 26 days hence from Entry signal. Average trade length for PDS/SPN has been 26 days.  We would consider this an acceptable window to have a mean reversion, however, every trader must have their own trading rule on this point.

SPN:

19 Feb 2018: Q4 2017 Earnings Announcement

SPN has not paid a quarterly dividend since Q1 2016, none announced for 2018.

  • Results announcement of 19 Feb 2018 is 30 days hence from Entry signal. Average trade length for PDS/SPN has been 26 days.  We would consider this an acceptable window to have a mean reversion, however, every trader must have their own trading rule on this point.

Pair Charts Covering Trade Period (Yahoo!Feed):

Ratio is not in a breakout at time of Entry Signal, but near resistance (a positive), ratio moving average is flat and ratio has had a lot of criss-crosses over the moving average (positive). Correlation has decayed and zig zagged a bit for the 90 days prior to the signal, but still reasonable at about 70% (positive).  RSI of Ratio at time of trade call was at 66.2, close to an extreme (a mild positive).

Conclusion: setup looks reasonable, the trade ranks as a possible entry.

Recent Volatility for Position Sizing Purposes:

We would rate moderate volatility over last 12 months (range 1.6%-3.2%) though increasing at time of trade at about 2.8%.  Suggests mild caution, though within tolerances for a standard position size.

RESULT OF TRADE

EOD Exit Trade Signal 8 March 2018 at -0.44 sd:

Short Leg: Buy to Close 2673 shares of PDS at $2.86, Gross Result = $2,378.97

Long Leg:  Sell to Close 921 shares of SPN at $9.34, Gross Result = -$1,363.08

Gross Result: $1.015.89, less commissions and slippage estimate and rounding errors of ($90.59) = $925.30.

Resulting Gross Profit of $925.30 in 48 calendar days on $10,000/leg.  That’s 9.3% on nominal leg value and up to a 28% return on CFD margined equity (max 6:1).

Top 30 US Equities Pairs: Trade of the Month Feb. 2018

 

Apogee Enterprises Inc (APOG:NASDAQ) vs.

Masonite International Corporation (DOOR:NYSE)

Resulting Gross Profit of $1,328.68 in 61 calendar days on $10,000/leg.  That’s 13.3% on nominal leg value and up to a 40% return on CFD margined equity (max 6:1).

Summary Profiles (Source: Yahoo! Finance, Company websites)

Apogee Enterprises, Inc. designs and develops glass products and services in the United States, Canada, and Brazil. The company operates through four segments: Architectural Glass, Architectural Framing Systems, Architectural Services, and Large-Scale Optical Technologies (LSO).  The company’s products and services are primarily used in commercial buildings, such as office towers, hotels, and retail centers; and institutional buildings, including education facilities and dormitories, health care facilities, and government buildings, as well as multi-family residential buildings. Apogee Enterprises, Inc. was founded in 1949 and is headquartered in Minneapolis, Minnesota.  It employs approx. 5,500 people.

 

Masonite International Corporation designs, manufactures, and sells interior and exterior doors for the new construction and repair, renovation, and remodelling sectors of the residential and non-residential building construction markets worldwide. It offers molded panel, flush, stile and rail, routed medium-density fibreboard (MDF), steel, or fiberglass residential doors.  Masonite International Corporation was founded in 1925 and is headquartered in Tampa, Florida.  It employs approx. 10,000 people worldwide.

 

APOG:NASDAQ vs. DOOR:NYSE
Summary Fundamental Comparison
(Source: Yahoo! Finance)
Financial Statements, Performance
 

Income Statement

APOG DOOR
Revenue (ttm) 1.29B 2.03B
Quarterly Revenue Growth (yoy) 30.10% 5.70%
Gross Profit (ttm) 292.02M 409.64M
EBITDA 172.03M 241.8M
Net Income Avi to Common (ttm) 80.28M 152.32M
Quarterly Earnings Growth (yoy) 4.90% 365.40%
Balance Sheet
Total Cash (mrq) 13.33M 176.67M
Total Debt (mrq) 231.28M 625.66M
Total Debt/Equity (mrq) 44.59 85.02
Current Ratio (mrq) 1.79 3.25
Book Value Per Share (mrq) 18.11 25.47
Profitability
Profit Margin 6.24% 7.46%
Operating Margin (ttm) 9.40% 7.88%
Management Effectiveness
Return on Assets (ttm) 8.58% 6.34%
Return on Equity (ttm) 16.54% 22.58%
Valuation Measures APOG DOOR
Market Cap (intraday) (USD billions) 1.28 1.88
Enterprise Value (USD billions) 1.5 2.3
Trailing P/E 16.2x 13.0x
Forward P/E 12.5x 13.2x
PEG Ratio (5 yr expected) 1.7 0.3
Price/Sales (ttm) 0.99x 0.92x
Price/Book (mrq) 2.5x 2.6x
Enterprise Value/Revenue 1.16x 1.14x
Enterprise Value/EBITDA 8.71x 9.62x

Current Three-Year Backtest Using PairTrade Finder PRO Top 30 Settings

(IQFeed datafeed)

7 trades in 3 years.  Avg. Correlation 48%, Cointegration 0.93, CAGR% 18.3%, Max DD% 14.3%, Percent of Winning Trades 86%, Avg. Net Profit per Trade $937.  Average Days in Trade 37 days.  Great equity curve in the last 12 months.  Good ratio line, lots of back and forth, though some periods of trending.

APOG/DOOR Relative Performance Last 12 Months

(IQFeed datafeed)

Notice the criss-crossing of the relative performance chart lines over the last year.  Shows the cointegration.

Entry Trade Signal EOD 21 December 2017 at -2.95 sd (IQFeed):

Short Leg: Sell Short 137 shares of DOOR at $73.15 = $10,021.55

Long Leg: Buy Long 235 shares of APOG at $42.32 = $9,945.20

Check News:

APOG – The signal was generated from a performance update press release of APOG on 21 Dec 2017 that announced a restructuring of one of its divisions and a 10-15% negatively revised guidance for the next quarter, on a revenue, EBITDA and EPS basis.  HOWEVER, a closer read shows much of the negative revision is due to delayed sales as a result of the Florida hurricanes that hit in Dec 2017, with that sales volume expected to be recovered in the following quarter.

DOOR – No fundamental value affecting news in the 10 days prior to the EOD 21 Dec 2017 Entry Signal.

Check Earnings Announcements & Dividends:

APOG:

 

  • Results announcement of 21 Dec 2017 was the trigger for the trade signal. Deemed not to have a lasting fundamental value impact on APOG
  • 10Q due on 11 Jan 2018 but likely not to have an impact as the results and updated guidance were pre-announced 21 Dec 2017.
  • Ex-dividend date of 29 Jan 2018 was over 39 days in the future. With an average trade length of 37 days, this is a bit close but not critical
  • Summary: May be deemed clear to trade.

Check Earnings Announcements & Dividends (cont.):

DOOR:

  • Results announcement for DOOR was on 7 Nov 2017 and no further announcement was due until 21 Feb 2018, 60 days in the future.
  • DOOR does not pay dividends.
  • Summary: May be deemed clear to trade.

Pair Charts Covering Trade Period (IQFeed):

Ratio is in a breakout at time of Entry Signal (a negative), hitting a yearly min and an extension of a gentle downtrend this year (trending ratio is a negative signal). HOWEVER, spread chart shows that the signal is a an annual high and is at RESISTANCE, without breaking it (a positive).  Also, despite the gentle downtrend, the pair has offered positive return trades this year with the given ENTRY and EXIT stretch parameters (positive) and has been both above and below the trendline.  Strong correlation for the 90 days prior to the signal (positive).  RSI of Ratio at time of trade call was at 29, an extreme (a positive).Finally, the EOD signal at -2.97sd shows the market has really “knee-jerked” on the APOG announcement, potentially offering a good fading opportunity.

Conclusion: setup could be better, but on balance the trade ranks as a possible entry.

 

Recent Volatility for Position Sizing Purposes:

We would rate APOG/DOOR high volatility over last 12 months (range 2.6%-4.2%) and decreasing to 2.95%.  Suggests caution on position size, potentially only 50% or 75% of standard leg size.

RESULT OF TRADE

Exit Trade Signal after crossing 0.0 sd:

Short Leg: Buy to Close 137 shares of DOOR at $67.05, Gross Result = $835.70

Long Leg:  Sell to Close 235 shares of APOG at $44.84, Gross Result = $592.20

Gross Result: $1,427.90, less commissions and slippage estimate and rounding errors of ($99.22) = $1,328.68.

Resulting Gross Profit of $1,328.68 in 61 calendar days on $10,000/leg.  That’s 13.3% on nominal leg value and up to a 40% return on CFD margined equity (max 6:1).

NB: The Top 30 example equities pairs in PairTrade Finder PRO are provided for informational and educational purposes only and should not be construed as personalized investment advice. It should not be assumed that trading using the parameters demonstrated by the Software will be profitable and will not result in losses. Please see our full Terms & Disclaimer?here.

Top 30 US Equities Pairs : Trade of the Month January 2018

 

Lakeland Financial Corporation (LKFN) vs. WSFS Financial Corporation (WSFS)

Resulting Gross Profit of $494.63 in 14 calendar days on $10,000/leg.  That’s 4.9% on nominal leg value and approx. 25% return on CFD margin equity.

LKFN is a small bank holding company offering consumer banking and wealth management services to retail customers and is based in Warsaw, Indiana.  It specialises in real estate and agribusiness loans.  The company operates 49 branch offices in North and Central Indiana.

Closing Share Price (LKFN:NASDAQ) as of 29 January 2018: $48.42

LKFN Valuation Measures (Source: Yahoo! Finance)

Market Cap (intraday) 5 1.21B
Enterprise Value 3 1.22B
Trailing P/E 21.71
Forward P/E 1 15.32
PEG Ratio (5 yr expected) 1 1.64
Price/Sales (ttm) 7.17
Price/Book (mrq) 2.59
Enterprise Value/Revenue 3 7.20
Enterprise Value/EBITDA 6 N/A

 WSFS is a thrift holding company based in Wilmington, Delaware that offers similar services to consumers and specialises in real estate lending activities.  The company operates 77 branch offices, principally in Delaware and Pennsylvania.

Closing Share Price (WSFS:NASDAQ) as of 29 January 2018: $51.70

WSFS Valuation Measures (Source: Yahoo! Finance)

Market Cap (intraday) 5 1.62B
Enterprise Value 3 1.84B
Trailing P/E 28.10
Forward P/E 1 13.79
PEG Ratio (5 yr expected) 1 1.28
Price/Sales (ttm) 4.85
Price/Book (mrq) 2.21
Enterprise Value/Revenue 3 5.50
Enterprise Value/EBITDA 6 N/A

 Current Three-Year Backtest Using PairTrade Finder PRO Top 30 Settings:

9 trades in 3 years.  Avg. Correlation 80%, Cointegration 0.85, CAGR% 10.0%, Max DD % 6.94%, Percent of Winning Trades 100%, Avg. Net Profit per Trade $367.86.  Average Days in Trade 33 days.  Very smooth equity curve.  Good, non-trending ratio line.

LKFN/WSFS Relative Performance Last 12 Months

Entry Trade Signal EOD 9 January 2018 at +2.01 sd:

Short Leg: Sell Short 203 shares of LKFN at $49.13 = $9,974.41

Long Leg: Buy Long 209 shares of WSFS at $47.82 = $9,995.43

Check News:

LKFN – No fundamental value affecting news in the 10 days prior to the EOD 9 January 2018 Entry Signal.

WSFS – No fundamental value affecting news in the 10 days prior to the EOD 9 January 2018 Entry Signal.

Check Earnings Announcements & Dividends:

LKFN:

Earnings call in 15 days from Entry Trade Signal.

Next Dividend Date is 5 Feb 2018.

WSFS:

Earnings release within 13 days of Entry Signal.

Next dividend date 22 Feb 2018.     

Pair Charts Covering Trade Period:

 

No ratio breakout at time of Entry Signal, hitting a yearly max (good) but not way outside.

Non-trending ratio line for last 12 months with lots of back and forth (good).  Signal occurring near a 12 month resistance line.

Strong correlation for the last 90 days.

RSI of Ratio at time of trade call at 60. Not an extreme.

Recent Volatility for Position Sizing Purposes:

Average to low volatility over last 12 months (about 1.4%) and decreasing to current low volatility (0.94%).  Suggests a full position size.

 

RESULT OF TRADE

Exit Trade Signal after crossing 0.0 sd:

Short Leg: Buy to Close 203 shares of LKFN at $50.48, Gross Result = ($273.03)

Long Leg:  Sell to Close 209 shares of WSFS at $51.75, Gross Result = $820.32

Gross Result: $547.27, less commissions and slippage estimate and rounding errors of ($52.66) = $494.63

Resulting Gross Profit of $494.63 in 14 calendar days on $10,000/leg.  That’s 4.9% on nominal leg value and approx. 25% return on CFD margined equity.

NB: The Top 30 example equities pairs in PairTrade Finder PRO are provided for informational and educational purposes only and should not be construed as personalized investment advice. It should not be assumed that trading using the parameters demonstrated by the Software will be profitable and will not result in losses. Please see our full Terms & Disclaimer here.

© 2018 Event Driven Investor Ltd. (www.pairtradefinder.com)

 

Tips on Setting Up My Watch List – Avoiding Industry and Single Stock Concentration

Your watch list will act as your home screen where you can evaluate pairs that have back tested through the Pair Trade Finder system.  After you have gone through the process of finding pairs to evaluate, back testing them, and adding them to the system, your pairs will be viewable on your watch list. There are a few important issues you should consider when developing a portfolio of stock pairs to watch, which include the number of specific industry pairs you should monitor, single stock concentration and how to anticipate a signal.

After you have gone through the process of finding companies that are in similar industries, you can add them to the Pair Trade Finder system, with a description as you are adding them to a group. This description will help you monitor these stock pairs when you are evaluating your watch list.  You might considered labeling them with sector names, such as financials, or energy.

You goal is to add approximately 5-8 pairs, that you monitor in your watch list.  You want to find the pair that are most attractive to you through the back testing process.  You can use criteria such as winning percentage or most profitable or even choose trades with the highest correlation or co-integration.  You want to avoid having too many pairs in the same industry as this might alter your long term performance. By having a heavy concentration of pairs in one industry a specific event might generate many signals that all move in tandem, and generate unwanted losses.

Additionally, you also want to avoid signal stock risk.  By having multiple pairs with the same stock, you could create signal stock risk where multiple signals are generated at the same time because a stock experienced negative headline news or even positive market information.  For example, if you had 4-pairs were Banks of America is paired versus, Citigroup, Morgan Stanley, J.P. Morgan Chase and Wells Fargo, and Bank of America has worse than expected earnings results, you will get 4-signals, and may experience 4-losing trades.

You can sort your watch list by group and see how many pairs you have per sector and reduce this number by the criteria that you deem the most important.

Lastly, each headline in your watch list provides you with the capability to sort using that title.  By sorting with the deviations from mean title, you can monitor the level and anticipate a change above or below your signal.  If your signal is 2.7 standard deviations above the 100-day moving average, then as a pair climbs toward that level you can begin to monitor that pair and determine if you are interested in that trade if a signal is generated.

Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.

Pair Trade COH Versus TJX

The Pairtrade Finder analytic generated a signal to purchase TJX Companies and Sell/short Coach.  Both companies are in the retaill space.  Coach surged on better than expected earnings, but is likely to run into resistance after climbing nearly 10%, as sales missed expectations.  TJX is scheduled to release its financial results in 2-week.  The watchlist shows the levels to enter the trade, as the stretch reached 2.7 standard deviations above the 100-day moving average.

The backtest of the two stocks shows that over the past 3-years 8-signals were generated with a stretch of 2.7 standard deviations for an entry criteria, and a take profit or stop loss when the ratio (the price of COH / TJX) reverted back to 1-standard deviation below the 100-day moving average.

The results were extremely impressive. The pair has a winning percentage of 100%.  The profit per trade was approximately $550.  The overall profit on the strategy over the 3-year period is $4,407, and the average correlation of the returns of the two shares is approximately 64%.

The trading signal section will describe the number of shares that need to be transacted if you use $10K on each side of the trade.  You would need to purchase 128 shares of TJX at approximately $77.99 and short sell 233 shares of COH at approximately $42.75.  The ratio is approximately TJX/COH of 1.82, or COH/TJX at 0.43.

The chart of the pair shows that the ratio (lower right) tumbled to the low end of the distribution, as it chops around in a broad range.

Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.

Pair Trade BBT Versus CFG

The Pairtrade Finder analytic generated a signal to purchase BB&T Corp and Sell/short Citizens Financial Corp.  Both companies are in the financial space.  Both stocks were buoyed following better than expected earnings, although the CFG was definitely a larger surprize.  BB&T was upgraded and should recoup some of its recent losses versus CFG.  Both companies released their earning during the week ending the 21st.   The watchlist shows the levels to enter the trade, as the stretch reached 2.7 standard deviations below the 100-day moving average.

 

The backtest of the two stocks shows that over the past 3-years 4-signals were generated with a stretch of 2.7 standard deviations for an entry criteria, and a take profit or stop loss when the ratio (the price of CLF / SWC) reverted back to 1-standard deviation below the 100-day moving average.

The results were extremely impressive. The pair has a winning percentage of 100%.  The profit per trade was approximately $450.  The overall profit on the strategy over the 3-year period is $1,801, and the average correlation of the returns of the two shares is approximately 86%.

 

The trading signal section will describe the number of shares that need to be transacted if you use $10K on each side of the trade.  You would need to purchase 226 shares of BBT at approximately $44.07 and short sell 371 shares of CFG at approximately $36.50.  The ratio is approximately 1.23.

 

 

The chart of the pair shows that the ratio (lower right) tumbled to the low end of the distribution, which moved in tandem with the spread.

 

Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.

Look At That Divergence! Are Target and Walmart a Pair Trade?

Based on the last year of price history, it would seem there is quite a divergence between Target (orange) and Walmart (white) share prices (see Bloomberg chart below). The pairs look fairly correlated, and there is a large divergence, so should you expect a return to the mean, and short Walmart and go long Target?
divergence 419

Upon further consideration, this would be a dangerous trade to take.  First the y-axes are not synchonised and the prices have not been re-based to zero.

If one rebases the prices to zero (see below), then one can see that over the past year there is little correlation between the two pairs and that the divergence does not necessarily indicate any potential reversion to the mean. The divergence in prices could be based purely on fundamentals.

divergence2419

Source: www.pairtradefinder.com

Second, one should check the actual correlation of the two pairs. The chart below shows the declining correlation over the past year between Walmart and Target, which is now a negative correlation.  The correlation is now down to about -19%.

divergence3419

 

Source: www.pairtradefinder.com

Third, if one backtests the performance of the two shares over the past year (see below), then it is clear from the plus minus chart that there would have been two profitable trades over the past 12 months (using an entry stretch of 2.0 and exit stretch of 0.0).

 

divergence4419

Source: www.pairtradefinder.com

Assuming a trade sixe of $10,000 per leg and commissions of 0.20%, one would have expected a net profit of approximately $950.

However, the volailtity of the pairs has been very high. As one can see from the chart below, while the cumulative profit from the two pairs at one point during the year would have hit approximately $1,100, it was also running at a loss of nearly -$300 for part of the year. Indeed, the trade is currently running at a cumualtive loss of of -$200.

divergence5419

Source: www.pairtradefinder.com

 

The lesson? Don’t just look at one chart or listen to a journalist’s view and assume a trade should be a good trade. Do your homework first. It doesn’t have to take long. You can do a backtest and news analysis in about 10 minutes or less. For the sake of your profits, take your time and do it right.

Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.

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Pair Trade CLF Versus SWC

The Pairtrade Finder analytic generated a signal to purchase Cliffs Natural Resources and Sell/short Still Water Mining Co. Both companies are in the mining and natural resources space. Infrastructure stocks, which include CLF are under pressure, as traders are concerned about the viability of Trumps legislative plans. CLF is scheduled to release earnings which are on April 27 and Still Water is schedule to provide financial results on May 5th, 2017. The is no stock specific news that is driving the pair lower.
The watchlist shows the levels to enter the trade, as the stretch reached 2.7 standard deviations below the 100-day moving average.
clf-swc 4-17-17
The backtest of the two stocks shows that over the past 3-years 5-signals were generated with a stretchof 2.7 standard deviations for an entry criteria, and a take profit or stop losswhen the ratio (the price of CLF/SWC) reverted back to 1-standard deviation below the 100-day moving average. The results were extremely impressive. The pair has a winning percentage of 100%. The profit per trade is slightly more than $1,238. The overall profit on the strategy over the 3-year period is $6,1920, and the average cointegration of the returns of the two shares is approximately 95%.
clf-swc 2 4-17-17
clf-swc 3 4-17-17
The trading signal section will describe the number of shares that need to be transacted if you use $10K on each side of the trade. You would need to purchase 1,470 shares of CLF at approximately $6.8 and short sell 599 shares of SWC at approximately $17.87. The ratio is approximately 0.41.
The chart of the pair shows that the ratio (lower right) tumbled to the low end of the distribution, which moved in tandem with the spread.
Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.
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Pair Trade HAL Versus TS

The Pairtrade Finder analytic generated a signal to purchase Haliburton and Sell/short Tenaris SA.  Both companies are oil service giant.  There was news reported on Tuesday that Tenaris believed that the jobs it will be creating in Texas will allow them to still import steel for their products into the United States.

The watchlist shows the levels to enter the trade, as the stretch reached 2.7 standard deviations below the 100-day moving average.

mar28post1

 

The backtest of the two stocks shows that over the past 3-years 7-signals were generated with a stretch of 2.7 standard deviations for an entry criteria, and a take profit or stop loss when the ratio (the price of HAL / TS) reverted back to 1-standard deviation below the 100-day moving average.

The results were extremely impressive. The pair has a winning percentage of 100%.  The profit per trade is slightly more than $600.  The overall profit on the strategy over the 3-year period is $4,200, and the average correlation of the returns of the two shares is approximately 88%.

mar28post2

 

mar28post3

The trading signal section will describe the number of shares that need to be transacted if you use $10K on each side of the trade.  You would need to purchase 208 shares of HAL at approximately $48.02 and short sell 297 shares of TS at approximately $33.57.  The ratio is approximately 1.49.

mar28post4

The chart of the pair shows that the ratio (lower right) tumbled to the low end of the distribution, which moved in tandem with the spread.

By looking for public companies that are in the same business, you can back-test hundreds of pairs to determine which stock pairs you want to monitor.  Your market neutral trading strategy should perform well in all market conditions as the impetus to take a position is not based on changes in the major stock indices.

Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.

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Why Pair Trading Can Perform Well in All Market Environments

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Pair trading is a form of market neutral investing were the risks that you take are based on the performance of one stock relative to another. The benefits of this type of trading technique is that the returns you receive are uncorrelated to the performance of the broader markets, which means that you can generate robust results in all types of market environments.

Hedge funds are very active pair traders, and whether they call their strategy long/short or statistical arbitrage, what they are doing is purchasing one stock and simultaneously selling short another stock.  So, if you are interested in trading like a hedge fund, a pair trading strategy is one that is easy for you to employ.

If you are asking why does pair trading work, the answer is that the markets can be inefficient for small periods, providing a pair trading opportunity.  Generally, companies within the same sector move in tandem with one another, but on occasion, the correlation can break down, giving you an opportunity to take advantage of this mispricing.

You can measure the relative value of one stock to another by the ratio which is stock A, divided by stock B.  This ratio, generally trades in a tight range, but when the correlation between the two stocks breaks down, the ratio will move to the outer end of the historical distribution generating a signal that you can back-test using Pair Trade Finder.

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By looking for public companies that are in the same business, you can back-test hundreds of pairs to determine which stock pairs you want to monitor.  Your market neutral trading strategy will perform well in all market conditions as the impetus to take a position is not based on changes in the major stock indices.

Contact us to start your 30-day free trial of Pairtrade Finder software, the perfect software tool designed to help you easily and quickly find high probability securities pairs to trade.

 

Wishing you consistent profitability,

Pairtrade Finder

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