Like ’em green?

Posted by on Jun 29, 2012 in ArbMaker News! | No Comments

One strength of having a powerful cointegration scanner is the versatility it offers when searching across industries.

Consider this pair: French firm Derichebourg SA, turning over €2.5bn of environmental services per annum (with another €1bn or so from associated business); and EDP Renováveis of Portugal, the world’s 3rd largest wind energy firm turning over a more modest €1bn.

Some charts. The data shown is intra-day and the cointegrating relationship is very strong:

Yet there is no direct business overlap. Derichebourg is classed an Industrial and EDP Renováveis an Energy (or Utility depending on where one looks).

But it turns out the scanner was right – there is a crucial indirect link: both are members of the Living Planet Green Tech Europe Index which happens to be tracked synthetically in the ETF market.

Derichebourg joined the index in January 2012. EDP Renováveis has been a constituent since the launch of the index in December 2010. Previously there was no statistical relationship between the two. However, since February 2012 they have been strongly cointegrated at the end-of-day resolution as well as on an intra-day basis.

With the link appearing to hinge substantially on index membership bear in mind the qualification criteria if trading the pair!

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