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Non-Tech : Paired Trades and Hedging Strategies
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To: tyc:> who wrote (133)7/16/2009 10:53:31 PM
From: Biomaven1 Recommendation  Read Replies (1) of 136
 
No, I wouldn't consider those two a paired trade. The essence of a paired trade is that there is something common to both sides of the trade that you want to remove from the equation. So you go long one airline and short another, and to a large extent you will have removed the impact of oil prices on your position. So if you like one airline stock and hate another, they would provide a good paired trade.

But for gold and the SPX, they are mostly going to move opposite each other based on external events. So long one and short the other may be a good trade (if you get the direction right), but it isn't a paired trade.

For gold and copper, they are more of a pair, but again gold is going to do its own thing in a crisis, so they are not a great pair. Copper and silver would be a better pair. But in any paired trade you still have to have some conviction why the long is a better deal than the short.

Peter
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