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Two's company - How equity pair trading works

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Saxo Bank's Mads Koefoed talks us through equity pair trading. Using Burberry and LVMH, the British luxury clothing brand has seen its shares surge over the last six months while the French luxury brand LVMH, owner of Louis Vuitton and Hennessy cognac, is up around 50% in the same period.

Trading the equity pair offers opportunities; as Mads Koefoed explains: "This has sent the spread between the two equities out to 2.3 suggesting a potential return of 4% in the case of a complete reversion to the (zero) mean. This has happened no less than 24 times in the last six months.".