The Pairtrade Finder analytic generated a signal to purchase TJX Companies and Sell/short Coach. Both companies are in the retaill space. Coach surged on better than expected earnings, but is likely to run into resistance after climbing nearly 10%, as sales missed expectations. TJX is scheduled to release its financial results in 2-week. The watchlist shows the levels to enter the trade, as the stretch reached 2.7 standard deviations above the 100-day moving average.
The backtest of the two stocks shows that over the past 3-years 8-signals were generated with a stretch of 2.7 standard deviations for an entry criteria, and a take profit or stop loss when the ratio (the price of COH / TJX) reverted back to 1-standard deviation below the 100-day moving average.
The results were extremely impressive. The pair has a winning percentage of 100%. The profit per trade was approximately $550. The overall profit on the strategy over the 3-year period is $4,407, and the average correlation of the returns of the two shares is approximately 64%.
The trading signal section will describe the number of shares that need to be transacted if you use $10K on each side of the trade. You would need to purchase 128 shares of TJX at approximately $77.99 and short sell 233 shares of COH at approximately $42.75. The ratio is approximately TJX/COH of 1.82, or COH/TJX at 0.43.
The chart of the pair shows that the ratio (lower right) tumbled to the low end of the distribution, as it chops around in a broad range.
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