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ASX Stock Pairs Trade Journal

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Wow. What a nice day. 2 out of 2 on CDI bid and CCL downgrade.

On the other hand, I was quite long beta (I had longs in PTM, MFG, IIN) and got fking ripped to pieces. AND I closed my EGP long yesterday :bad:
 
Have the other pairstraders been getting the PTF emails lately?

Pretty spruiky to say the least...
 
Entered PTM/CPU today. Some pretty big divergence at the moment and the pair shows pretty good correlation. The fund managers have been releasing some good FUM updates (CGF, HGG etc) so I am hoping for PTM to follow the crowd.
CPU on the other-hand continues its multi-year run which has gone extreme lately, all time high is 12.90 compared to current price of 12.50...perhaps there will be some resistance looming.
 

PTM already released FUM on 7 Apr...
 
skc said:
PTM already released FUM on 7 Apr...
Click to expand...

Looking forwards to next month...7th May.

Noted that the last FUM report was pretty weak and price as a result has been weak.

Maybe I am just too biased to shorting CPU at the moment
 
VSntchr said:
Looking forwards to next month...7th May.

Noted that the last FUM report was pretty weak and price as a result has been weak.

Maybe I am just too biased to shorting CPU at the moment
Click to expand...

FUM report by PTM wasn't awesome but the weakness predominately stem from recent selloff in momentum / high PE stocks. PTM trades on a historical PE of some 22x and is up over 100% in the last 18 months.

I am not trading pairs at the moment due to family committments, but I think the fall in these momentum stocks is actually the process of a longer term mean reversion against the other slower stocks. I wouldn't mind pairing high PE stocks against each other, but I'd be more inclined to short these names on retracements against a long in the more boring names.
 
skc said:
I am not trading pairs at the moment
Click to expand...

Noted that SKC isn't trading pairs currently, but how are the others going?

The last few weeks has been quite rough for me...I am getting a few signals but finding minimal reversion...
Some good movement today has sent off a few signals within the REIT's and building materials - but most of it is news related with a bunch of updates and presentations out today.
 

JHX, BLD, ABC, FBU and GWA all down today, I'm not sure that's all to do with the presentations though (especially for JHX fell the most but didn't present). Maybe the strong Aussie dollar is to blame here, but I'm still in regardless, looking at BLD/DLX at the moment.

Last week/month was good for me, but this week going nowhere!
 

My read was that BLD said the harsh weather over US winter impacted operations, so JHX reacted to that..
Also BLD didn't downgrade but perhaps some were looking for some more optimistic statements given the SP trend until the last week or so.

I do like BLD/DLX and traded it successfully last week (my only decent trade!), but avoided it this week..I was also looking at BLD/ABC...

Treading carefully at the moment as I seem to have curse this week !!
 

Still no pairs from me. Just watching when I get a chance to so I keep up to date on the market. I hate the Macq conference season. So many presentations, no real schedule and important yet buried updates every now and then.

VSntchr said:
I do like BLD/DLX and traded it successfully last week (my only decent trade!), but avoided it this week..I was also looking at BLD/ABC...

Treading carefully at the moment as I seem to have curse this week !!
Click to expand...

M&A has really picked up of late... ALZ, ROC/HZN, AUT, GFF, AQA, TWE rumour, ENV, PNA. I don't remember seeing so many names on my pairs list being involved. So take care.
 
I'm finding it hard to understand what on earth the AQA thing is all about. 8 billion infrastructure required. It's not viable.
 
Had a bit of a crazy month with both my biggest loser and biggest winners.

Have closed off alot of pairs this week and am now only holding 1 as compared to 8 last week.
Having a look at PRY/ANN at the moment. News of the gp co-payment has been pulling back PRY while ANN has taken off with the resurgence of the market this week.
There is a decent reversion target on offer here of 6% plus but at this stage I might sit this one out...I personally don't think the proposed legislation will have a dramatic effect on PRY and it would seem that the worst is priced in, however I think I would prefer to keep my opinions on news out of my pairs trading.
 
skc said:
M&A has really picked up of late... ALZ, ROC/HZN, AUT, GFF, AQA, TWE rumour, ENV, PNA. I don't remember seeing so many names on my pairs list being involved. So take care.
Click to expand...

Still lots of M&A activity. Just SAI today and DUE last week. Really don't know whats safe to short anymore. Previously utilities have been pretty good for pairs trading but with the recent activity in ENV and now DUE I may stay clear.
 
kefa said:
Still lots of M&A activity. Just SAI today and DUE last week. Really don't know whats safe to short anymore. Previously utilities have been pretty good for pairs trading but with the recent activity in ENV and now DUE I may stay clear.
Click to expand...

Probably shouldn't be too worried that you stop trading pairs altogether. Some of the names which received takeover offers were long-term potential candidates (ALZ, GFF, DJS, ENV, DUE, TWE).

On face value, there is no inherent "negative edge" in pairs and takeovers...you are just as likely to long a stock when a takeover offer is announced. The most important issue is to make sure you size you positions such that you don't get wiped out if something goes against you.

It would be interesting to do a deeper research about takeover offer vs recent share price performance. May be share prices do tend to rise immediately before a takeover offer is revealed as news is leaked... and hence you are more likely to short that name.

On the other hand, may be the opposite is true: That stocks with lower share price relative to recent performance attracts more takeover offers, and hence you are more likely to be long.

I am guessing that any analysis would be quite inconclusive and largely depends on the timeframe you pick to define "recent movement". And I'd suspect that, on balance, takeovers are probably neutral to the strategy over many thousands of trades. So again, key is to make sure that you are not wiped out.
 
skc said:
Probably shouldn't be too worried that you stop trading pairs altogether. Some of the names which received takeover offers were long-term potential candidates (ALZ, GFF, DJS, ENV, DUE, TWE).
Click to expand...
Agree, there has been alot of M&A, but most of it has been pretty expected and nothing has shocked me..

May be share prices do tend to rise immediately before a takeover offer is revealed as news is leaked... and hence you are more likely to short that name.
Click to expand...
Don't jynx me, I just went short CHC!



Yep position sizing seems to be the most important part of pairs trading. I've had that reinforced to me recently with a few pairs that I probably was a bit overzealous with.
And I also agree with the takeovers being neutral to the strategy - I have already had two in my favour (CDI and ENV) so I expect some will go against me at some point, providing some mean reversion to my takeover statistics :
 
MSCI rebalance this Friday. It may generate some good opportunities in the close.
 

Wow. I have been through those 2 exact thoughts countless times.

I was short AXA because it spiked the day before its takeover from AMP and long MCC when that got bought out, that's 2 in about 5 years. It can even up although from my recollection the AXA premium was about 40% and I had just increased my position size, ahhhhh memories...
 
What sort of capital figure would you guys say is a good starting point?
I'd imagine commission/spreads could be a killer. Plus any extended period of draw down.
 

I had MCC short when the takeover was announced (on Friday after close just so I could cry over the weekend). And I hit a perfect AWB/(something) merger pair in my favour. I also had CQO when the deal was announced, but the premium was quite small. I had more luck with ALZ when the rumour came out but didn't hold over the actual announcement.

Having said all that, the level of M&A over the last 5 years has been very low by historical standards.

DJG said:
What sort of capital figure would you guys say is a good starting point?
I'd imagine commission/spreads could be a killer. Plus any extended period of draw down.
Click to expand...

The overarching consideration should be based on what you are comfortable in risking. Also, your size should be such that you'd last long enough in the market to learn the strategy.

From a commission point of view... if you are say paying 10bps with minimum $10, then something like $5-8k aside "should" be enough to see you have a good go without commission eating too much into the edge. So if you take a leg size = 15% of capital (which is a reasonable number from a drawdown and adverse event consideration), you'd need something like $35-50k of capital.
 
Thanks for that SKC. Will definitely keep that in the back of my head.
 
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