Tuesday, October 20, 2009

Pair Scans on ETNs

Bill Luby had an interesting post about often neglected ETNs (exchange traded notes) yesterday so I thought it might be interesting to run a pairs linearity correlation with the SPY against the ETNs just to see if anything popped out.
To back up a little bit, Bill ran a relative performance scan of the ETNs and found the top performer to be CRO, followed by NFO so we have a little benchmark to work with.
Above is the result of my pair scan using only SPY as the overriding index. I could have also plugged in DIA, VTI, QQQQ, etc, but just to keep it simple I stuck with SPY.
Mirroring Bill's results, CRO turns out to be the star of this little basket, but in this case we actively trade it against the SPY.
Keep in mind these are the results for the past 6 months only and not all trades are shown in the Trade Report. . . .but that is one nice looking equity curve!. Only 2 losing trades out of 42 -- .36 and .72 %. Great drawdown control.
But, before you jump hook, line and sinker into this trade there's a leeeetle problem: volume. Just as JJT turned out to be kind of a fantasy trade, I'm afraid CRO falls into the same black hole of illiquidity. In fact, of this dirty half dozen ETNs only NFO (IMHO) has sufficient volume to warrant trading but, another problem, it has a HTB (hard to borrow) status with several brokers, including Schwab.
Nevertheless, CRO is something to keep an eye on if volume picks up to a tradeable level.

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