Our proprietary techniques on cycles are adapted to various advisory services including Pairs Trading. Visit us or talk to us to find out more about how you can use various market neutral strategies to enhance profitability for your portfolio.

1. Pairs Portfolio
A Brief Overview

2. Background
• Developed in the 1980’s by a group of Quants at Morgan Stanley, who reportedly
made over $50 million profit for the firm in 1987
• A contrarian strategy that tries to profit from the principles of mean-reversion
processes
• In theory, one could expand the strategy to include a basket of more than a pair of
related stocks

3. Pair Strategies
Use Volatility to Your Advantage
• Attempt to remove market influence from stock picking
– Sector and Market Neutrality achieved through holding long and short stocks
• Attempt to capture turning points in stocks
• “Buy Low – Sell High” embedded in strategy
Bring Predictability to Returns from Equities

4. Hunting for Pairs
• Correlated or “Sister” Stocks
– High Correlation Coefficients / Outlier Discipline
– High Z Scores (Cointegrated Series)
• Same Sector and Similar Financial Profile
Evaluate Current
Spread Versus
• High Level of Predictability / Backtesting Historical
• High Liquidity
• Low Event Risk Time ENTRY / EXIT using
proprietary CWM tools
Our Key Differentiator: Our Proprietary Tools Aiming at 95% Accuracy

5. Illustration
Trade: Buy Ambuja Cements and Sell ACC
Trading Points

6. Model Capable of Absorbing Events
Illustration: May 2012
Model Gave the following Calls prior to important events:
CALL GENERATED EVENT RESULT
LONG BHEL Results SUCCESSFUL
LONG SBI Results SUCCESSFUL
SHORT IDEA 2G/3G Related News SUCCESSFUL
SHORT ACC Cartelisation Rumours SUCCESSFUL
SHORT KOTAK Technical Breakout SUCCESSFUL
SHORT HERO MOTO Results SUCCESSFUL
All Calls Above Were Exact Opposite of Technical Analyst Recommendations

7. Dealing with Failed Timing
Option 1 Option 2
Exit Call and Utilise Other Average at second trigger
Opportunities level
Option 3
Stay with Call Till
Recovery OR change in
fundamentals confirmed
Our Calls have not failed unless permanent fundamental adverse events happen

8. Corporate Office
B 401, Kemp Plaza
Mindspace Chincholi Bunder
Malad West
Mumbai
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