Market Neutral Idea: Long AMS, Short IMP

Over the short term, and on a technical basis, Anglo American Platinum ( JSE:AMS ) appears to be trading near a 'oversold' range vs Impala Platinum ( JSE:IMP ). On this basis, from a market neutral perspective, I consider a long (buy) position in AMS vs a short (sell) position in IMP.

The two shares have a high historical correlation however the recent trend ( JSE:AMS underperforming JSE:IMP ) has seen this correlation develop a discrepancy, opening up an opportunity to potentially profit as prices revert to it's mean.

A successful pair trade can be realized 1 of 3 ways:

The long position rises while the short position falls

The long position rises faster than the short position rises

The short position falls faster than the long position falls.

Pre-market view of entry levels (subject to change based on subsequent intraday price action).

Last close of ratio price: 7.16
Preferred entry range: 7.05 - 7.18
Stop-loss: 6.92
Target: 7.75

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