Recap 18.41 sunday 6 oct 2019
Employing an ETF pairs strategy may be useful when there is a disconnect between assets that are usually highly correlated.
Sector, country, and index ETFs also provide opportunities for the pairs trader, usually involving going long on a strong ETF and short on a weaker one. It’s important to exit the trades when the assets realign or the trends of strong and weak assets reverse.
It would also be wise to set a loss limit on each trade, and realize that markets are dynamic; relationships that existed yesterday may not necessarily exist tomorrow.
Consider our S&P 500 and Dow Jones index example. These indexes are highly correlated and both are tradable via ETFs: the S&P 500 SPDR (SPY A) and the Dow Jones Industrial SPDR (DIA A-). When the two separate, they generally reconnect, although that can take days or months.
Sector, country, and index ETFs also provide opportunities for the pairs trader, usually involving going long on a strong ETF and short on a weaker one. It’s important to exit the trades when the assets realign or the trends of strong and weak assets reverse.
It would also be wise to set a loss limit on each trade, and realize that markets are dynamic; relationships that existed yesterday may not necessarily exist tomorrow.
Consider our S&P 500 and Dow Jones index example. These indexes are highly correlated and both are tradable via ETFs: the S&P 500 SPDR (SPY A) and the Dow Jones Industrial SPDR (DIA A-). When the two separate, they generally reconnect, although that can take days or months.
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