relative value trade arbitraggio sul valore relativo
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| Language pair: | English to Italian |
| Definition / notes: | Relative value trading is essentially when you are looking for a situation where you have two usually correlated assets that have gone out of whack. One good example is that of oil and natural gas. Both of these are used for energy and consequently typically trade in line with each other. They don't track perfectly but in a typical month they will both move up or down roughly the same percentage. But occasionally they have a significant divergence where one has moved a lot farther then the other one. In a situation like you can buy the under priced asset and short the over priced asset and then hold them until their relationship comes back into line. Do these relative value trades always work out? No, they do not. Sometimes the relationships have a fundamental reason for ending but more often then not they will converge and with proper position sizing you can profit fairly consistently from these moves. Another great example and a simple measure of cheap or expensive is if you look at Treasury securities. Take the yield of the two and the ten year and then average them. You should now have a number with an average duration of just six years. This should trade very much in line with the five year note. If you plot this out you will see that when the relationship gets too far out of the norm you can go long or short the five year and then buy or sell the two and ten year notes for a nice relative value trade. Again sometimes these trades will appear for a reason and other times they just happen. For instance if the five year got expensive all of the sudden due to the Fed saying hat they are buying a lot of five year notes then you would likely not want to take the trade. On the other hand i the trade just appears because of less then rational investors you likely have a winning trade. The typical global macro trader takes directional bets in several different securities. If you want to supplement this type of trading with some slower but higher odds trades then you would also be wise to add relative value trading to your global macro trading arsenal. |
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