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Product Presentation : Pairs

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Our proprietary techniques on cycles are adapted to various advisory services including Pairs Trading. Visit us or talk to us to find out more about how you can use various market neutral strategies to enhance profitability for your portfolio.

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Product Presentation : Pairs

  1. 1. Pairs Portfolio A Brief Overview
  2. 2. Background• Developed in the 1980’s by a group of Quants at Morgan Stanley, who reportedly made over $50 million profit for the firm in 1987• A contrarian strategy that tries to profit from the principles of mean-reversion processes• In theory, one could expand the strategy to include a basket of more than a pair of related stocks
  3. 3. Pair Strategies Use Volatility to Your Advantage• Attempt to remove market influence from stock picking – Sector and Market Neutrality achieved through holding long and short stocks• Attempt to capture turning points in stocks• “Buy Low – Sell High” embedded in strategy Bring Predictability to Returns from Equities
  4. 4. Hunting for Pairs• Correlated or “Sister” Stocks – High Correlation Coefficients / Outlier Discipline – High Z Scores (Cointegrated Series)• Same Sector and Similar Financial Profile Evaluate Current Spread Versus• High Level of Predictability / Backtesting Historical• High Liquidity• Low Event Risk Time ENTRY / EXIT using proprietary CWM toolsOur Key Differentiator: Our Proprietary Tools Aiming at 95% Accuracy
  5. 5. IllustrationTrade: Buy Ambuja Cements and Sell ACC Trading Points
  6. 6. Model Capable of Absorbing Events Illustration: May 2012Model Gave the following Calls prior to important events: CALL GENERATED EVENT RESULT LONG BHEL Results SUCCESSFUL LONG SBI Results SUCCESSFUL SHORT IDEA 2G/3G Related News SUCCESSFUL SHORT ACC Cartelisation Rumours SUCCESSFUL SHORT KOTAK Technical Breakout SUCCESSFUL SHORT HERO MOTO Results SUCCESSFULAll Calls Above Were Exact Opposite of Technical Analyst Recommendations
  7. 7. Dealing with Failed Timing Option 1 Option 2 Exit Call and Utilise Other Average at second trigger Opportunities level Option 3 Stay with Call Till Recovery OR change in fundamentals confirmedOur Calls have not failed unless permanent fundamental adverse events happen
  8. 8. Corporate OfficeB 401, Kemp PlazaMindspace Chincholi BunderMalad WestMumbaihttp://castaneawealth.blogspot.in/

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