$UNH vs $CI $Pairs Trade Battle. Who is winning?
One of the hidden strategies most people don’t talk about is “pairs trading”. Some people talk about it but still the concept is not done right. I learned this powerful strategy in the institutional world.
What is pairs trading? Pairs trading is a hedge based strategy. The goal is to trade one instrument and hedge with another instrument. For example, if you like to trade Apple stock, you buy that instrument. To hedge it, you should sell their major competitor. As long as you limit your risk and make sure you get a 3:1 ratio, you will make money. This strategy is executed every quarter so it starts to create a “residual” income every quarter.
The key is to make sure at least one of the instruments move in your direction. To do this, we use technical analysis to determine the following:
- Which/When instrument to buy
- Which/When instrument to sell
This month, we are going to look in the $Healthcare industry for a $pairs trade. The two companies are $UNH UnitedHealth Group Inc and $CI Cigna Corporation.
We will step through the process below. For more details, you can find the information in our Option University.
Below is a zoomed out Monthly chart if $UNH vs $CI. If price goes up, this means $UNH will be more bullish then $CI. If price goes down, this means $CI will be move bullish then $LMT. We use this chart to determine when to place the pairs trade and which instrument to buy/sell.
The sentiment is bullish and has been holding the top of the cloud. As long as the support holds, $UNH will be more bullish than $CI.
Below is the Weekly chart:
Price is in a bullish consolidation pattern which just now hit the top of the cloud. So far, price is holding the top of the cloud and trying to force price to get to the major resistance.
Below is the Daily chart:
The daily shows the bullish sentiment for this bar. Twice, there was a bearish setup that failed. This increases the probability of it going up.
Below is the Monthly chart of the stock $UNH:
Below is the Monthly chart of the stock $CI:
Last Month Pairs trading Update
Below is the current daily time frame.
Price held the support and we are retesting the high. This price action was caused by $BA being more stronger bullish than $LMT.
Below is last month Daily time frame:
EDUCATIONAL USE. Commodity Futures Trading Commission, Forex, Futures, Equity and Options Trading has large potential rewards, but also has large potential risk and may not be suitable for everyone. You must be aware of the risks and be willing to accept them in order to invest in these markets. Do not trade with money you can not afford to lose. This is neither a solicitation nor an offer to Buy/Sell. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this document. The past performance of any trading system or methodology is not necessarily indicative of future results. All information provided on the Blog is for educational purpose.