Trade of the Month: Dis-Chem vs Clicks
Dis-Chem seems like the better choice in this environment though it trades on an even more demanding earnings multiple than Clicks
Over the past 12 months, Dis-Chem is up 28% and Clicks is up 14%. This is a retail sector that enjoys steadily growing demand in SA, supported by population increase as well as improvements in the living standards of the average South African.
The theory behind a pairs trade is to find two companies in the same sector that should diverge significantly in value. This doesn’t necessarily mean that one of the companies needs to decrease in value. The process of a pairs trade entails shorting one of the companies through borrowing the stock and selling it, thereby raising the cash needed to buy the long position. Provided the long position meaningfully outperforms the short position (even if both go up), you make money...