Learning The UTX-GE Spread
Monday, October 11, 2010 at 11:15AMWritten by Norm Winer. Follow me on Twitter and StockTwits
The October 4, 2010 issue of Barron’s included a positive article about United Technologies Corporation (UTX). The article cited the company’s balanced business portfolio and the fact that it generates over half its revenue outside the United States as attributes that help it do well in any economic environment.
For me, the more interesting part of the article was the comparison made to General Electric (GE). According to the article, the companies are both large industrial conglomerates, but while GE is certainly better known, UTX may have the more balanced business portfolio. The article noted that “some who follow UTX liken it to GE without the beleaguered financial division.”
Based on the article, I decided to initiate the following spread trade: buy one UTX, sell four GE. I haven’t followed either stock very closely, so I put the trade on small to start. I paid $5.25 per spread on 10/6/10. As of the afternoon of 10/7/10, it was trading at about $4.65. Given the size of the position and the nature of the two companies, I view this trade as a low-risk way to learn the spread.
Reader Comments (2)
Something that may interest you (if you haven't seen this site)- I saw this Dollar Neutral pairs tool from catalyst corner, it allows you generate reports on a pair of stocks.
Sample report generated
https://docs.google.com/fileview?id=0B-XmUq4WQD1GZTZmN2M2MGYtY2U1ZS00MzUwLTlmZTktNzllMTcxZjlhOTM2&hl=en&authkey=CNfCqn0
From the spread chart the GE-UTX spread has been mean-reverting for the past 20 months.
Site
http://www.catalystcorner.com
That is a fantastic site. WOW! Thanks Aris