Advice ahead of a pair trade presentation - HF interview

I've been tasked by a hedge fund as part of the interview process to put together a presentation on a pair trade idea. I've done stock pitches before, but never a pair-trade idea. Beyond the usual stock pitch must-haves like fundamental analysis of the two companies themselves, macro, valuation, etc, is there anything else I should focus on and dedicate slides to for a pair trade?

I've done a Dickey-Fuller test to prove co-integration, and therefore validating it as a possible pair trade. I'll try to present this in an interesting way in a slide to show I understand what makes a pair trade possible. I'll also of course be doing valuation/share price comparisons to show the two stocks have diverged.

Is there anything else a hedge fund PM would expect in a pair-trade presentation that wouldn't typically be in a vanilla stock pitch? HF and stocks are European, if it's of relevance.

Thanks

 

What type of hedge fund is it? If it’s a pod don’t do company overview/macro whatever just get to the thesis points and they need to be clear cut (so not just company A is a good business with great fundamentals and B has weaker fundamentals so long A and short B) 

 
Most Helpful

You don’t need to do this dickey fuller stuff tbh, you don’t need to prove divergence or anything, just that one stock will outperform the other. Both can (and probably will) go up or down depending on the dispersion of the industry, the purpose of a pair trade is to harvest the idio on the names and capture a long/short spread. I.e Stock A goes up more than B or B down more than A and you shorted the right one.

you can include a very brief overview, but pod pitches are not long term business bets, you need to demonstrate you know where the key drivers of the business are heading in the near term for each. Think of it more as an event driven pitch, rather than the super deep industry stuff you might have done for a finance club LO pitch. I’m only going to hold the stock for a few months, I don’t need you to tell me the absolute ins and outs, just what the idea is, how we get paid. If I need more I’ll ask 

and yes, knowing when the thesis will kick in is essential, this is your catalyst path (normally earnings where you think A or an will beat/miss by X EPS)

you pair trade ideally should be in the same vertical, might be easier if I DM you?

 

second that, and would go further and limit yourself to 5min. Seriously, if you take over 5min to explain it in a simple manner, you’re not dominating the thesis. 5min + remaining for Q&A has always been my go-to, and has always been the go-to with every HF I know.

 

Man you don’t need to do a hypothesis test for cointegration.

What is your variant perception? When/why will it materialise into the market’s discounted future expectations for the stocks? If it’s for a pod, those are the only two questions you need to answer.

What are the key drivers whereby my perception differs from that of the market? Why does it differ - i.e., what does the market think about those key drivers and why do I think differently? Why is that justified? How can convert thesis that to numbers?

How are those numbers actually going to materialise into the market’s (discounted) expectations for both stock? In other words, give a couple of catalysts.

Your variant perception cannot be “I reject a null of no cointegration”. Anyone with undergrad econometrics/stats knowledge can perform that test. The info to perform such a test is already in the market’s info set and the answer to the question of a cointegrating relationship is black and white (at a given significance level). Think about it logically - there cannot be any alpha in that.

 

Sit eos aut voluptas et est repudiandae et. Expedita dolorem qui cupiditate deserunt in. Nihil perferendis autem earum.

Placeat iure aliquid dolores non nostrum. Omnis corporis nobis fugiat tempora vel. At illum veritatis et voluptatem earum necessitatibus adipisci. Quae doloribus cumque vero consequuntur aperiam aut distinctio. Totam dolores et aliquam placeat laborum qui rerum ipsam.

Non tempore qui unde ipsum. Asperiores soluta atque quae ut cupiditate. Non praesentium dolor doloribus officia ea dolores. Voluptas velit adipisci quam impedit suscipit et occaecati. Quam consectetur sit consequatur similique. Deleniti et dolor et totam exercitationem qui. Et similique tempore commodi assumenda voluptatem.

Molestiae laborum placeat sunt corporis. Voluptas et sequi amet voluptatum quibusdam minima vel illo. Fuga consequatur ducimus molestiae aspernatur molestiae voluptate voluptatem.

Career Advancement Opportunities

June 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Citadel Investment Group 96.8%
  • Magnetar Capital 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

June 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

June 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Magnetar Capital 95.8%
  • Citadel Investment Group 94.8%

Total Avg Compensation

June 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (25) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (227) $179
  • Intern/Summer Associate (23) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (253) $90
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
GameTheory's picture
GameTheory
98.9
6
dosk17's picture
dosk17
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
DrApeman's picture
DrApeman
98.8
10
Linda Abraham's picture
Linda Abraham
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”