Wednesday, March 5, 2014

Pair trading indices: shorting the AEX

ING stuwt AEX
ING stuwt AEX (Photo credit: Gerard Stolk (vers le Midi-Carême))
I am Dutch and I know from first hand experience that the Dutch economy is an open economy. When world trade slows down this immediately effects the Dutch stock exchange. Although this sounds like a bad thing, I figured this could also be used as a sort of counter balance in a pair trading strategy.

Below are some graphs of my exploration of this idea.
The idea is to sell short on the AEX index and buy different other indices.

Short: blue line
Long: green line
Difference: red line

Dutch AEX against the London FTSE

Dutch AEX against the German Dax

Dutch AEX against the US S&P500

Dutch AEX against the US Nasdaq

Dutch AEX against the US Russell 2000

If you like to do your own exploring. Here is the python script that produced these graphs. Let me know if you find any other interesting pairs.