Emkay: Alternative Research: Ratio Trade: Buy TCS and Sell HCL Tech
Rajesh Desai
We recommend initiating a pair trade: Buy TCS (TCS.IS) @ 2034-2036 and Sell HCL Tech (HCLT.IS) @ 1129-1131. The current price ratio is 1.8009 and the target price ratio is 1.9810. The strategy has to be a rupee neutral strategy.
The chart below indicates the spread prevailing between returns of TCS vis-à-vis HCL Tech in a one year data window. Since 5th December, 2012, TCS has moved up by around 56% while HCLT Tech has surged by around 76%, resulting into a negative spread of around 20%. Earlier, the pair has shown convergence at around the spread of -20% to -21% on 1 occasion (as shown in chart below). We believe a similar situation to occur. The pair has already started converging in favour of TCS.
Following are the key statistics in a one year data window.
|
TCS Vs |
Current Spread |
Mean |
Standard Deviation |
Z Score |
Percentile |
|
HCL Tech |
-19.78 |
-5.74 |
5.44 |
-2.57 |
1.21 |
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Thanks & Regards, |
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Emkay Equity Advisory | Emkay Global Financial Services Ltd. | www.emkayglobal.com |
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CA. Rajesh Desai