Jack Welch retired at the top of the 2000 peak in GE shares and was universally viewed as a genius, visionary, expert and the most evangelist CEO in the world. I can't help but think that perhaps AAPL will share a similar fate with the transfer of power from Jobs to Tim Cook. GE was the largest cap in the world at the peak (north of $600 billion back then) versus $400 billion at the peak this year for AAPL . Does anyone want to analyze this further and report your findings? The point? If you shorted GE when Welch retired, you could buy something else to hedge it and had you chosen JPM it would have been an ideal candidate. I had argued at the time that GE was simply the S&P500 on steroids, so going long the S&P versus short GE would have worked wonderfully too. Pairs trading has its benefits. To bring this back to AAPL: If you shorted AAPL , which would you pair it with? The S&P? I think so.
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When GE peaked in 2000, it was definitely at an extreme, meaning that GE was far outperforming beyond all rational lines of thinking. That was fertile ground for the start of a great trade. On a trading basis, your point is absolutely correct. Here is what to do: find stocks that move no further than 20% apart from each other in the past 12 months. So, make the graph just 1 years time and see the max spread between the stocks. In that way, pairs trading can reduce the average volatility in your P&L by 50% or more.