Pair Trading Strategy: Short SBIN, Long HDFCBANK
India Alternative Research
Pair Trading Strategy : Short SBIN, Long HDFCBANK
Recommended Strategy Short SBIN, Long HDFCBANK on a rupee-neutral basis. Currently, the November Futures of SBIN and HDFCBANK are trading at Rs 1,121.25 and Rs 821.90 respectively, giving a current price ratio (SBIN/HDFCBANK) of 1.380 . We recommend profit booking at the price ratio of 1.216 , keeping a stop loss of 1.502 . The expected return at the target is 11.8%, computed on gross exposure. Over the past 1 month, SBIN has outperformed HDFCBANK as SBIN has decreased by 20.0% as against a decrease of 22.9% in HDFCBANK. As a result, the current price ratio of 1.380 is trading at 2.79 x standard deviations above 20 day mean price ratio. HDFCBANK Price Ratio (SBIN / HDFCBANK)
1.52 1.40 1.28 1.16 1.04 Feb-08 Jan-08 Apr-08 Jul-08 Aug-08 Sep-08 Dec-07 Mar-08 Oct-08 Nov-07 May-08 Nov-08 Jun-08
November 21, 2008 10:26 AM IST
SBIN Bloomberg NSE Price Mkt. Cap (Rs Cr) Beta Lot Size Lot Value (Rs) SBIN=1 SBIN 1,121.25 70,678 1.05 132 148,223
Bloomberg NSE Price Mkt. Cap (Rs Cr) Beta Lot Size Lot Value (Rs)
HDFCB=1 HDFCBANK 821.90 34,439 1.05 200 167,160
Source : Bloomberg, KRC Research
CA Alok Agarwal alok.agarwal@krchoksey.com ℡ 91-22-6696 5555 (Ext.502)
Key Statistics Stock Ratio data Current Ratio Expected Ratio % return 1.380 1.216 11.8% Average Ratio 20 days 60 days 250 days 1.193 1.210 1.252 Correlation 20 days 60 days 250 days 84% 85% 93%
www.krchoksey.com
KRC Research is also available on Bloomberg KRCS, Thomson First Call, Reuters and Factset
India Alternative Research
Past Performance Closed Trades :
No. of Days Trade Open Start Date / Close Date Entry Strategy Price (Rs.) 504.90 282.90 1,016.15 1,507.55 1,387.55 161.10 283.20 72.80 301.30 69.60 758.10 322.40 429.60 126.10 589.00 80.15 Entry Ratio Close Price (Rs.) 549.00 278.40 817.30 1,110.00 1,268.00 163.50 278.25 76.50 306.70 66.85 758.50 338.00 383.35 119.25 608.55 85.95 Close Ratio Ret. On GE
Pair Trading Strategy : Short SBIN, Long HDFCBANK
Recommended Strategy Short SBIN, Long HDFCBANK on a rupee-neutral basis. Currently, the November Futures of SBIN and HDFCBANK are trading at Rs 1,121.25 and Rs 821.90 respectively, giving a current price ratio (SBIN/HDFCBANK) of 1.380 . We recommend profit booking at the price ratio of 1.216 , keeping a stop loss of 1.502 . The expected return at the target is 11.8%, computed on gross exposure. Over the past 1 month, SBIN has outperformed HDFCBANK as SBIN has decreased by 20.0% as against a decrease of 22.9% in HDFCBANK. As a result, the current price ratio of 1.380 is trading at 2.79 x standard deviations above 20 day mean price ratio. HDFCBANK Price Ratio (SBIN / HDFCBANK)
1.52 1.40 1.28 1.16 1.04 Feb-08 Jan-08 Apr-08 Jul-08 Aug-08 Sep-08 Dec-07 Mar-08 Oct-08 Nov-07 May-08 Nov-08 Jun-08
November 21, 2008 10:26 AM IST
SBIN Bloomberg NSE Price Mkt. Cap (Rs Cr) Beta Lot Size Lot Value (Rs) SBIN=1 SBIN 1,121.25 70,678 1.05 132 148,223
Bloomberg NSE Price Mkt. Cap (Rs Cr) Beta Lot Size Lot Value (Rs)
HDFCB=1 HDFCBANK 821.90 34,439 1.05 200 167,160
Source : Bloomberg, KRC Research
CA Alok Agarwal alok.agarwal@krchoksey.com ℡ 91-22-6696 5555 (Ext.502)
Key Statistics Stock Ratio data Current Ratio Expected Ratio % return 1.380 1.216 11.8% Average Ratio 20 days 60 days 250 days 1.193 1.210 1.252 Correlation 20 days 60 days 250 days 84% 85% 93%
www.krchoksey.com
KRC Research is also available on Bloomberg KRCS, Thomson First Call, Reuters and Factset
India Alternative Research
Past Performance Closed Trades :
No. of Days Trade Open Start Date / Close Date Entry Strategy Price (Rs.) 504.90 282.90 1,016.15 1,507.55 1,387.55 161.10 283.20 72.80 301.30 69.60 758.10 322.40 429.60 126.10 589.00 80.15 Entry Ratio Close Price (Rs.) 549.00 278.40 817.30 1,110.00 1,268.00 163.50 278.25 76.50 306.70 66.85 758.50 338.00 383.35 119.25 608.55 85.95 Close Ratio Ret. On GE