Pairs Trading

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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

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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 Ret. On AD Remarks

9

17-Oct-08 29-Oct-08 07-Oct-08 20-Oct-08 14-Oct-08 17-Oct-08 13-Oct-08 14-Oct-08 06-Oct-08 06-Oct-08 30-Sept-08 3-Oct-08 20-Sept-08 26-Sept-08 13-Sept-08 22-Sept-08

Long TCS Short SATYAMCOMP Long LT Short BHEL Short INFOSYSTCH Long HCLTECH Long RCOM Short IDEA Long RCOM Short IDEA Short BHARTIARTL Long RCOM Short DLF Long UNITECH Short ACC Long AMBUJACEM

1.785

1.972

10.5%

15.8%

-

10

0.674

0.736

9.1%

18.2%

-

4

8.613

7.752

10.0%

16.0%

Stop Loss triggered on first day itself after touching high of 4.060 Profits booked on first day itself. 1st target was revised as the market was very volatile. 1st target was revised as the market was very volatile. 50% Profit booked on 19Sept and bal. 50% closed out on 22-Sept

1

3.890

3.637

-6.5%

-11.1%

1

4.329

4.588

6.0%

12.0%

3

2.351

2.244

4.8%

9.6%

5

3.407

3.117

6.0%

9.0%

6

7.349

7.080

2.8%

5.7%

• •

GE = Gross Equity Exposure; AD = Amount Deployed for margins (taken at total margin of each stock and 10% safety margin)

Open Trades :
No. of Days Trade Open Start Date / Close Date 29-Oct-08 Open Entry Price (Rs.) 995.00 55.55 Entry Ratio Current Price (Rs.) 905.00 56.☺0 Current Ratio Ret. On GE -10.2% Ret. On AD -10.2% Remarks

Strategy

12

Long GRASIM Short AMBUJACEM

17.960

16.132

• •

GE = Gross Equity Exposure; AD = Amount Deployed for margins (taken at total margin of each stock and 10% safety margin)

2

KRC Research

India Alternative Research

3

KRC Research

India Alternative Research

Rajiv Choksey Anuj Choksey Poran Das Alok Agarwal

Institutional Sales Institutional Sales Institutional Sales Institutional Research

rajiv.choksey@krchoksey.com anuj.choksey@krchoksey.com poran.das@krchoksey.com alok.agarwal@krchoksey.com

+91-22-6653 5135 +91-22-6696 5500 +91-22-6696 5548 +91-22-6696 5502...
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