Celsius Holdings, Inc.Formación
How To Make Money With No Overall Market Risk
Today I'm going to talk a bit about relative value trading, something that almost nobody on this site is familiar with. The best way to learn about it is by running through an example.
I've been watching this trade for a long time, and it's finally starting to perk its head up again. CELH is an awesome, high rev growth and high margin business in the beverage industry that I really want to be long with no market risk. In order to get long this stock while eliminating my exposure to the overall market, I'm going to short another company in order to reduce my market correlation.
W is one of the worst internet retailers around. They will likely never make a profit, and they have run up 800% run due to high revenue growth from covid that likely won't last. One of my friends works across from their office, and prior to the pandemic he told me that employees had to line up outside work for an hour so they could get scanned in properly. But that's besides the point. The stock is massively overextended, and the company just had negative press over the weekend involving child trafficking, which is a very sensitive issue & an additional headwind + reputation risk.
By combining these two trades in the correct proportions (beta hedging), I will not only look to generate alpha from each side leg of the trade, but I will also do so without being exposed to market correlation. The performance of this trade is entirely up to the sector risk that these companies operate in, and the business models and execution of the management. This type of trading is also called "relative value", and it's what a lot of long/short professional hedge funds do. Think about how you can begin to hedge your risks while making money on your insurance!
Cheers
I've been watching this trade for a long time, and it's finally starting to perk its head up again. CELH is an awesome, high rev growth and high margin business in the beverage industry that I really want to be long with no market risk. In order to get long this stock while eliminating my exposure to the overall market, I'm going to short another company in order to reduce my market correlation.
W is one of the worst internet retailers around. They will likely never make a profit, and they have run up 800% run due to high revenue growth from covid that likely won't last. One of my friends works across from their office, and prior to the pandemic he told me that employees had to line up outside work for an hour so they could get scanned in properly. But that's besides the point. The stock is massively overextended, and the company just had negative press over the weekend involving child trafficking, which is a very sensitive issue & an additional headwind + reputation risk.
By combining these two trades in the correct proportions (beta hedging), I will not only look to generate alpha from each side leg of the trade, but I will also do so without being exposed to market correlation. The performance of this trade is entirely up to the sector risk that these companies operate in, and the business models and execution of the management. This type of trading is also called "relative value", and it's what a lot of long/short professional hedge funds do. Think about how you can begin to hedge your risks while making money on your insurance!
Cheers
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