Pairs Trading with ROB

While I have never written down any sort of mission statement or goals for VIX and More, my aim here has always been to bring fresh ideas, new subject matter and original graphics to an investment landscape that I find all too often overrun by the same warmed over sound bites and clichés.

Ideally, I would like to give readers a steady diet of ideas and concepts they can ruminate about and use to incorporate new thinking into their trading.

I have never been keen on trading blogs, but there are times when I should probably make a better effort to build a bridge from ruminations to trading. Yesterday’s Hermès vs. Wal-Mart is a case in point. The post generated a fair amount of feedback, including some discussion about possible pairs trading approaches for some retailing ETFs and individual stocks.

The chart below is an adaptation of the Claymore/Robb Report Global Luxury Index ETF (ROB) to Wal-Mart (WMT) ratio discussed in yesterday’s post and incorporates some pairs trading tools found in ETF Rewind, a powerful Excel spreadsheet tool and companion blog that is a sister site to Jeff Pietsch’s popular Market Rewind blog.

The chart shows the potential for a market neutral pairs trading approach using ROB and WMT that incorporates a 4 day lookback period and results in a nice smooth hypothetical profit and loss curve. [Click to view full-sized original graphic]

Readers who are interested in learning more about pairs trading or who are interested in a superb Excel spreadsheet for analyzing ETFs are encouraged to check out in ETF Rewind, which is available with a three day free trial.

[source: ETF Rewind]

Disclosure: I use ETF Rewind on a daily basis and have been so happy with it that I now offer a special annual subscription bundle consisting of VIX and More, ETF Rewind and Quantifiable Edges in a ‘Blogger Triple Play’