Pairs Strategy
“Adopt the pace of nature: her secret is patience.”
Ralph Waldo Emerson
S
Overview
We perform a co-integration analysis on the top 60 shares (by market
capitalization), and total return indices over a 3-year period with the aim of
identifying co-integrated pairs. Daily closing price data is used.
For each pair the level of co-integration is measured using a simple
linear regression.
The ratio of the pair variances are used to infer a signal to noise ratio.
Trade for the week
The Top40/DTop pair is co-integrated and has a good signal to noise ratio.
A Bollinger band strategy on the Top40/DTop indicates that the Top40 is cheap
relative to the DTop. Trade of the week: Long Top40 Short DTop.
5,00
Top40/DTop
Band Middle
4,90
2 Std Band Up
4,80
2 Std Band Down
4,70
4,60
4,50
4,40
4,30
11
4/
13
16
20
/1
15
20
/0
0/
15
20
15
/0
0/
20
14
/1
4/
16
18
4/
/0
14
20
20
13
/1
0/
19
4,20
Best 3 Index Pairs
Rating
1
2
2
Dependent Stock
Dtop
Fini15
JMNNG
Best Pairs
Independent Stock
Top40
Dtop
Resi20
Beta
0,83
0,74
1,05
Criteria 1
t-Stat
-2,87
-2,15
-3,95
Beta
0,54
1,04
1,21
Criteria 1
t-Stat
-4,24
-3,85
-3,09
Beta
0,62
-0,22
0,41
Criteria 1
t-Stat
-2,96
-3,17
-4,66
Beta
1,25
0,56
0,44
Criteria 1
t-Stat
-4,15
-3,13
-2,67
VarSpecific
1,7%
2,3%
12,1%
VarError
0,02%
0,11%
0,10%
Criteria 2
Signal/Noise
80,8
21,5
126,0
VarError
0,32%
0,22%
0,69%
Criteria 2
Signal/Noise
9,7
15,0
12,0
VarError
1,7%
0,6%
0,2%
Criteria 2
Signal/Noise
13,6
13,0
11,6
VarError
0,9%
0,5%
1,1%
Criteria 2
Signal/Noise
52,2
18,8
8,6
Best 3 Financial Pairs
Rating
1
2
2
Dependent Stock
JSE
NED
SLM
Independent Stock
OML
SBK
FSR
VarSpecific
3,1%
3,3%
8,28%
Best 3 Industrial Pairs
Rating
2
2
2
Dependent Stock
TKG
CSB
MDC
Independent Stock
NPN
SAB
BVT
VarSpecific
23,7%
7,7%
2,8%
Best 3 Resources Pairs
Rating
2
2
2
Dependent Stock
EXX
AGL
IMP
Independent Stock
ARI
BIL
BIL
VarSpecific
48,1%
10,1%
9,5%
Best Pairs
Best 3 Retail Pairs
Rating
1
1
2
Dependent Stock
SPP
PIK
MPC
Independent Stock
WHL
WHL
SPP
Beta
0,63
0,68
0,64
Criteria 1
t-Stat
-4,26
-2,85
-2,86
Beta
1,26
1,31
0,43
Criteria 1
t-Stat
-3,58
-3,05
-3,94
Beta
0,35
0,34
1,05
Criteria 1
t-Stat
-4,56
-4,56
-4,08
VarSpecific
3,95%
3,46%
6,88%
VarError
0,39%
0,88%
1,96%
Criteria 2
Signal/Noise
10,0
3,9
3,5
VarError
1,21%
1,12%
0,10%
Criteria 2
Signal/Noise
6,7
6,9
17,3
VarError
0,03%
0,02%
0,04%
Criteria 2
Signal/Noise
23,0
24,6
131,6
Best 3 Cross Sector Pairs
Rating
1
1
2
Dependent Stock
WHL
REM
FSR
Independent Stock
JSE
SPP
MIDCAP
VarSpecific
8,1%
7,7%
1,7%
Best 3 Total Return Index Pairs
Rating
2
2
2
Dependent Stock
SAPI
SAPI
JLFEA
Independent Stock
ALBI
Govi
FINI15
VarSpecific
0,6%
0,6%
5,8%
Quant Analyst
Angelo Joseph
Melwynn Koopman
Kenneth Koh
[email protected]
[email protected]
[email protected]
+27 87 150 8684
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