ASX Stock Pairs Trade Journal

[skc]

Trade #29. Long FWD @ $11.93. Short UGL @ $12.71. Size 8%.

 

[skc]

Added another 5%. Long CQR @ $3.28. Short CFX @ $1.955.

Closed trade. Sold CQR @ $3.38. Covered CFX @ $1.95. Profit = 3.65%.

Missed profit target by a tick... but only had the opportunity to take the closing auction price.

New trade opened.

Trade #30. Long ENV @ $0.775, short SKI @ $1.535. Size 10% of account.

Will probably build another 5% if divergence widens.

 

[skc]

Trade #28. Long CPU / Short IRE. Both companies are stock market activity levels - CPU benefits from capital raising and corporate events, while IRE from trading volumes. Fundamentally both stocks have similar place in my mind - former market darlings priced for growth that are now being re-rated. On the charts, IRE has enjoyed a 10% bounce from recent lows right into resistance zone in $6.6-$6.8. CPU is only up ~2% and if it manages to get back above $7.6 it can potentially retest $8.20. Profit target ~6-7%.



Trade #29. Long FWD / Short UGL. FWD is leveraged to the mining boom with a good portion of its business in the manufactured building space for mining developments and had a remarkable run from the bottom of the GFC. Because of this leverage it will likely run harder if the market stays in risk-on mode. FWD is threatening resistance at $12.1 and if broken offers a potential ~$12.5. UGL is also at a sloping resistance and has retraced ~50% of the recent downleg. Profit target ~4%.



Trade #30. Long ENV / Short SKI. Gas vs electricity distributor. The utilities / infrastructure sector makes good pairs trading as they tend to have lower risk of company-specific shocks. The main fundamental factor I look is the dividend yield (and the ex-dividend date). ENV enjoys a higher yield, and the ex-div dates are both far enough away for it to not matter much yet. ENV is hitting lower bounds of a 5-month channel between 76 and 81c. SKI's chart is a bit scary for a short as if it breaks $1.54 there might be a 10% run in it - but I do intend to fade the break and build the position further if it happens. Hopefully the resistance will hold SKI back while ENV rotates back towards the top of the channel. Profit target ~5%.

 

[skc]

EOD.



24 closed trades with 20 wins.

TEL/SGT was a good albeit early close - there was another 1.5% in it if I just walked off for a cup of coffee. CQR/CFX was right on target but I didn't get a fill before the closing auction. PTM/IFL have enjoyed 2 wins which cumulated to a 5.1% gain - so sometimes taking profit ahead of target offer opportunties to re-enter a trade that the system says is still on.

6 open trades with 5 of them at breakeven while BLY/ASL is down. Average age of the positions is only <3 days so let's see what transpires...

 

[skc]

Trade #19. Long GPT / Short WRT. Two REITs that didn't go ex-div on Monday. Took me a while to work the entries and got $3.225 / $2.84. This is the 3rd time I've shorted WRT and usually this means I should stop doing it soon (i.e. it's going up for a reason unknown to me). Profit target is ~3.5%.

Position closed. Sold GPT @ $3.315. Covered WRT @ $2.87. Profit = 1.73%.

After a few days of directionless floating the divergence reduced and that is pretty much the convergence ratio plus half the spread.

New trade #31 opened. Long SGP @ $3.12. Short CQR @ $3.41. Size 12.5%

 

[nulla nulla]

I like the sgp long trade at $3.12. I exited at $3.17 and re-entered at $3.12 in the smf a/c. Dont know enough about cqr (the other half of your pair) to comment on that one. But patience in sgp should see a return to $3.17+ imo. Good luck.

 

[skc]

Yesterday's picture.

I like the sgp long trade at $3.12. I exited at $3.17 and re-entered at $3.12 in the smf a/c. Dont know enough about cqr (the other half of your pair) to comment on that one. But patience in sgp should see a return to $3.17+ imo. Good luck.

CQR is the old Macquarie Countrywide. It's managed by Charter Hall. It moves pretty much inline with other retail REITs.

 

[skc]

Trade #32 opened. Long STO @ $10.94. Short OSH @ $6.77. Size = 12.5%

Trade #33 opened. Long MIN @ $8.88. Short CPB @ $55.48. Size = 10%.

Trade #34 opened. Long CSL @ $38.4. Short RHC @ $22.6. Size 15%.

 

[skc]

Trade #35. Long BOQ @ $6.70. Short BEN @ $7.70. Size 15%.

 

[skc]

Trade #36 opened. Long AGO @ $2.10. Short MGX @ $1.005. Size 10%.

 

[SilverRanger]

In queue for long DXS, short GPT, long MRM and NWH atm
Wish I have more capital to open more trades!

 

[skc]

In queue for long DXS, short GPT, long MRM and NWH atm
Wish I have more capital to open more trades!

Yup. I am pushing the account pretty hard at the moment.

DXS is lagging all REITs at the moment and you might get better run for your money with short GMG.

 

[skc]

Trade #37 opened. Long FGE @ $4.425. Short NWH @ $3.24. Size 7.5%.

Had this open during the day but forgot to include it...

 

[skc]

Charts...

STO/OSH - Normally I avoid any stock that has recent fundamental news and STO last week announced a cost blowout (which they denied) on their LNG project which caused the share price to fall sharply. But the chart suggests that there's good buying below $10.50 plus it's always a takeover target. The OSH chart is right on resistance at $6.80 and I can see a possible retracement back into $6.4-6.5. The STO/OSH ratio is at 6 month low.

Full convergence up to 8%, but profit target ~5% depending on price action.



MIN/CPB - A trending ratio chart suggests poor historical performance. MIN was a strong mining service stock until March and has been in a down trend since. Only now the chart is showing some consolidation at the lower levels but it's a mere 6% off recent low - many stocks in the sector of decent quality has bounced 10-20%. CPB had a much later start (early May) to the downtrend which was prompted by the profit report. The good thing about pairing with CPB is that it is off-cycle wrt reporting so any nasty pre-report guidance change is avoided.

Profit target ~6%+



CSL/RHC - Two of the strongest stocks on the ASX with defensive qualities. CSL recently touched $40 but was rejected - it will most likely visit there again. RHC is also making 2nd attempt at new high at $22.8, but it has pretty much been channelling higher since March. Bottom of the channel is ~$22.

Profit target ~3.5%, but will look to close the legs at around $40 / $22 mark.

 

[skc]

BOQ/BEN - Two small regional banks both beginning with "B". BOQ is hitting resistance at $6.8, the same resistance that BEN cleared back at $7.4. So all things being normal, either BOQ can spike up or BEN can retrace towards the breakout. Profit target ~4%.



AGO/MGX - Small iron ore miners both hit hard by the down turn. MGX had a very nice bounce of late (up 15% from the bottom) while AGO has lagged a bit (only up 9%). Full convergence ~10% but only looking for ~5% as both pairs can be volatile. This pair should move into profit quickly if the market falls tomorrow.



FGE/NWH - Two smaller mining services stock that have decent fundamentals if the mining boom doesn't disappear overnight. NWH is up 18% from the recent low, FGE is up only 7%. If the market stays in risk-on mode, FGE can possibly find $5 again, while NWH is looking at $3.6. So with good luck and timing there'd be a profitable time to exit the pair from now till they get there.

Full convergence is a massive 13%. Profit target ~6-7%. Position size kept small as FGE can be thin at times.

 

[skc]

EOD

Plenty of trades but not too much movement on the P&L. Good convergence from BLY/ASL (finally) - I like to see it move into profit by the end of the week or it's a scratch candidate.

Having 12 pairs open is about the limit for pairs trading - you start to get too busy working multiple orders and you start to run out of physical screen space to see all the prices and market depths. From a margin requirement perspective, however, it is not too bad. Total leg size is ~270% of account value. Assuming an average margin requirement of 20% it takes 54% of account to hold these positions - so there's no worry of margin call or anything like that.

 

[sinner]

Charts...

Interested in how/whether you size depending on the slope of the ratio average you've got there.

e.g. full size when slope is 0/flat, reduced size inversely proportional to slope type of thing.

I size based on dispersion, but my spreads are sloped a lot flatter generally. The ones you posted look not much less trendy than an underlying security itself.

Here is another short-term one I encountered recently, can't remember where exactly sorry.
X=StockA * StockB (the X is up to you, maybe want to beta weight it)
Y=X-AVG(X,3)
Z=PercentRank(Y,252)

Short the ratio above Z=0.5 and long the ratio below Z=0.5, or use the Z value as input parameter into position sizing algorithms (100% long at Z=0, 100% short at Z=1, flat at Z=0.5).

 

[skc]

Interested in how/whether you size depending on the slope of the ratio average you've got there.

e.g. full size when slope is 0/flat, reduced size inversely proportional to slope type of thing.

I size based on dispersion, but my spreads are sloped a lot flatter generally. The ones you posted look not much less trendy than an underlying security itself.

The size is based mostly on liquidity and volatility (and sector). I put larger size on the more reliable sectors like REITs and smaller size on volatile pairs like iron ores. FWD and FGE both have relatively shallow market depth so size is kept small so my trading doesn't influence the depth too much, plus it's safer in case of adverse events.

The size variation in this portfolio is a little bit tighter... In my own trading the position sizes range from 5% to 20%.

Your guess of slope of the MA is probably a smart idea that I haven't really thought about. I will keep an eye on it to see if it has a role in trade performance.

 

[skc]

Trade #18 opened. Long BLY @ $2.835. Short ASL @ $3.275. Size 10%.

Trade closed. Sold BLY @ $3.08. Covered ASL @ $3.51. Profit = 1.47%.

 

[skc]

Trade #38. Long DXS @ $0.915. Short GPT @ $3.35. Size 15%.