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Spread Trading represents the simultaneous buying and selling of two related securities based on the expectation that their relative prices will converge. This is a widely accepted trading strategy among traders and investors which main intention lies on the possible risk reduction. Now due to the method GeWorko traders can create portfolios with ease and comfort, choose proper asset allocations and carry out a trade with high income.
Eurozone consists of nearly two dozens of countries, each having its own economic characteristics. The sovereign debt crisis, also known as European crisis, has brought down stock markets of all the countries. However, it is logical that the reaction could not be quantitatively the same everywhere. In this article we will try to investigate the behavior of the major German index DAX and the major French index CAC40, to compare their dynamics in order to determine the relative pace of recovery of each of them from 2009 to 2013.
It is well known that financial markets are cyclical in nature, with investment capital flowing from gold and silver to "paper" assets and vice versa. Investors worldwide prefer to keep their funds in the form of precious metals when the state of an economy is poor: during crises, wars and defaults, when there is no trust in the stock market.
Spread Trading also known as Pair Trading is a relatively new trading technology that has become popular among private investors in the mid- 1990s. Currently, spread trading is a popular tool among traders who have discovered it as a smart way to make profit. Spread Trading is a strategy that allows the trader to use anomalies, as well as fairly strong differences between prices of two stocks or baskets, while maintaining relative neutrality towards the market fluctuations.
This product is based on relative fundamental analysis of US financial institutions: Bank of America (BA), Citigroup (C), Bank of New York (BK), Goldman Sachs (GS), JP Morgan (JPM), Morgan Stanley (MS). Every institution is a big bank-issuer, the stocks of which trade on exchanges NYSE/NASDAQ. The main financial indicators from financial reports (profitability, revenue, book value of stocks) are of limited relative value – they differ significantly from industry to industry. These indicators can be used for conducting objective valuations for only issuers belonging to the same industry. This product is based on the analysis of the financial sector of the USA.
This product is based on relative fundamental analysis of six global energy companies: British Petroleum (BP), ExxonMobil (XOM), Total (TOT), Petrobras (PBR), Chevron (CVX), Occidental Petroleum (OXY). Each company is involved in gas and oil production all over the world and is a major issuer, stocks of which are traded on NYSE.
To build a portfolio the US Dow Jones (DJI) components were used. The instrument is created by opening opposite positions on competing companies stocks. The shares with the best risk/return ratio (long position) are compared to the least attractive ones of the rivals (short position). Portfolio weights are optimized in order to reduce the correlation with the market indices (hedging) which makes it possible to limit economic risks of U.S. (recessions, crises, speculative market crashes etc.).
To build a portfolio the German DAX (GER30) components were used. The instrument is created by opening opposite positions on competing companies stocks. The shares with the best risk/return ratio (long position) are compared to the least attractive ones of the rivals (short position). Portfolio weights are optimized in order to reduce the correlation with the market index (hedging) which makes it possible to limit economic risks of Germany and EU.