Thin market and statistical arbitrage in safe-haven assets

27 dic 2019

The period of the Christmas holidays is traditionally characterized by low liquidity in the financial markets (so-called “thin market”). So you can increase the level of aggressiveness in trading to the maximum due to the relatively insignificant volatility. But at the same time, the probability of flash crashes and sharp inexplicable jumps in volatility during such periods is maximum.

We have not noticed any flash crashes on this Christmas, however, strange movements were present. Dynamics of safe-haven assets during Christmas week, for example. Gold has been growing steadily that day and consolidated above 1510. At the same time, the Japanese yen is under pressure and buyers tried to break through the resistance level at 109.60.

Well, yen rate dynamics could be explained by Trump’s announcement that an official ceremony of signing an interim trade agreement between the United States and China will be held soon. But the growth of gold, in this case, is illogical.

Who is right in the end: gold or the yen - we will see. And we have a trading idea about this. This is the so-called statistical arbitrage. The correlation level between gold and the Japanese yen in 2019 was quite high. That is, statistically, they should change synchronously. Now there is a desynchronization (divergence). It can be eliminated either if gold drops sharply, and the yen remains unchanged, or the yen rises sharply with gold remains at the same level. Both of these options guarantee earnings if you simultaneously sell gold and buy the Japanese yen.

And finally, another excellent trading opportunity - sale of the Russian ruble. For those who are already in the pair's purchases, we would recommend adding twice the volume.