Pair Trade Setup : Short Sanlam vs. Long Standard Bank
Cập nhật
Sanlam has outperformed Standard bank by a margin of 27% from the lows we saw in May of this year. The chart of their relative ratios ( SLM / SBK ) has now approached an important area of resistance (0.46 to 0.477) which has been in place for the last two years. If you take a look at the individual charts of the underlying counters, one will notice that Sanlam has once again turned off important resistance levels between R82 and R85 while Standard Bank is not trading too far away from its 200 week moving average which has provided important support for the stock over the last two years. In Addition, the Standard Bank daily chart is trading in a triangle with support some R2 away from current levels. This would support my view on the pair trade as i believe that Sanlam will under-perform Standard Bank going forward, or at least, there is sufficient reason to believe that Standard bank has a better chance of climbing higher than Sanlam at this point in time. In Addition, the MACD indicator has made a lower high even though price made a slightly higher swing high which further reinforces my view that price action is weak and should see the pair ratio revert lower.
SLM -> PE ratio: 22.2x DY : 3.85%
SBK -> PE ratio 9.8x DY: 5.69%
From a fundamental perspective, Standard Bank's Price to Earnings Ratio is not demanding whilst also boasting a much better Dividend yield.
Suggested ratio entry point : 0.463 - 0.475
Suggested ratio stop loss: closed above 0.480
Suggested ratio exit point: 0.427 to 0.433
To be entered at a ratio of 1:1. i.e 100k nominal short position in Sanlam vs. 100k nominal long Position in Standard Bank.
Assuming we entered this pair at 0.465 today, used a stop loss at 0.480 and locked in profits @ 0.43, we are risking a move of 3.2% against us to make a potential profit of 7.5% for a risk reward ratio of just over 2.3x
SLM -> PE ratio: 22.2x DY : 3.85%
SBK -> PE ratio 9.8x DY: 5.69%
From a fundamental perspective, Standard Bank's Price to Earnings Ratio is not demanding whilst also boasting a much better Dividend yield.
Suggested ratio entry point : 0.463 - 0.475
Suggested ratio stop loss: closed above 0.480
Suggested ratio exit point: 0.427 to 0.433
To be entered at a ratio of 1:1. i.e 100k nominal short position in Sanlam vs. 100k nominal long Position in Standard Bank.
Assuming we entered this pair at 0.465 today, used a stop loss at 0.480 and locked in profits @ 0.43, we are risking a move of 3.2% against us to make a potential profit of 7.5% for a risk reward ratio of just over 2.3x
Ghi chú
Please note it looks like the Y axis moved out slightly after publishing the chart (no idea why) so please adhere to the suggested ratio ranges mentioned in the write up above.
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