A simple pair trading idea based on the price movements of the last 1 week: ENS/AAVE
In the last 1 week, AAVE has risen by exactly 12.72% while ENS has only managed to increase by 2.13%.
In base terms, the percentage price difference change between them is exactly 10.59%, which means that AAVE has risen by approximately 11% more than ENS.
AAVE and ENS are both highly popular tokens on the Ethereum network.
Although they both have historical collinearities close to 1, they have shown some divergence in this period.
We will use this divergence in our favor and open positions thinking that this 10% difference will close.
What we need to do is very simple, for example, open a $100 ENS Long position and immediately open a $100 AAVE Short position.
If the market turns down and both tokens fall, we would expect AAVE to fall more than ENS in our estimation.
So, our AAVE position will bring us a profit of, for example, $5 because it is Short, while our ENS position will bring us a loss of, for example, $3 because it is Long.
If we close both positions at the same time, our total profit will be 2 dollars out of 100 dollars.
A gain of 2%!
If the market is going up, and both tokens go up, we expect ENS to go up more than AAVE, and in this case, for example, our profit on ENS could be $10, while our loss on ENS could be $6. By closing both positions, we could make a total profit of $4!
A gain of 4%!
One beauty of Pair Trading is that you don't need to know the direction of the market! Whether the market is down or up, if your Pair idea makes sense, you can make money either way!
I personally have $350 in this Pair Trading at the moment, I will keep you updated!
