Pair Trades

When trying to keep a neutral portfolio, it is sometimes useful to look at possible pair trades.
The objective of pair trades is to find stocks that would move more on their merits than because of market/sectors moves. This means that the elements related to market moves would cancel due to the opposite direction of the trades, but because we would short weak stocks and be long strong stocks, the pair trades should end up being profitable.

Lets for example look at the hot Internet content, Internet Retail, Social media, Software games and Software security sectors.

Looking at these sectors, I came with the table below, which slows on the left side two sets of long and short candidates in terms of EV patterns. A few of these EV patterns are shown below.

However, when you look at the Supply patterns of all these stocks, only GRPN is making it to the short list. This means that only one of the long candidates should be taken to balance a short on GRPN.

This is only an example. It does not mean that I will or will not take the trades.



Pascal

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