0 Pair Trade (LT and BHEL)

Long BHEL & Short LT

Over the past two week, a sell-off in the capital goods sector has resulted in a breakdown in the co-relation between BHEL and LT, thus widening the historical price ratio relationship. One year co-relation between BHEL and LT is at 73%.

We believe this deviation from mean is likely to revert back. We recommend traders to go long on BHEL (1 Lot Aug futures and 208 shares in cash) and short LT (1 lot Aug futures) at price ratio of 6.27-6.40 with Stop loss placed at 6.6 for target of 5.78.

LT August Future CMP : 1312.90

Bhel August Future CMP : 209.40

*~Outlflow(`1.8lacs), Time horizon - 30days, Expected return 5%