timwest

PAIRS TRADE: Buy RDS.A, Short XLE 13% Spread

BATS:RDS.A   Royal Dutch Shell PLC Royal Dutch Shell
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2
PAIRS TRADE:
Buy RDS.A
Sell XLE

BUY RDS.A (lagging by 13% over 18 months) 65.65 last
SELL SHORT XLE (ahead by 13% over 18 months) 79.27 last

Tight correlation for the last year and a half and lately Royal Dutch Shell has lagged by 13%. With a large dividend yield, north of 5%, providing some valuation support, this spread could close for a gain of 13%. However, I will look for half of that gain or 6.5% and I think risking 5% to capture this profit opportunity.

Tim
March 26, 2013 3:13PM EST
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Comments

hmmm you lose !
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You can see what this ratio looks like by going to http://stockcharts.com/h-sc/ui?s=rds.a%253Axle
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