Monthly Archives: April 2017

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,

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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?

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.

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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. … Read More →

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.

 

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,

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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. 

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