Berkshire Hathaway Versus SPY

BRK.B Vs SPY 12-18-12 to 11-22-13There have been many articles comparing the performance of BRK.B (Berkshire Hathaway B) with other investments. Many such articles refer to the SPY exchange traded fund(ETF) which mirrors the value of the Standard & Poor 500 index. At times BRK.B outperforms the SPY and at other times the SPY outperforms BRK.B. Over long time horizons, BRK.B has been the better investment.

As of June 12, 2012, the six-month correlation of BRK.B was .96 with the S&P 500 (source: Bespoke Investment Group) as reported in the WSJ. 1.0 being perfectly correlated and -1 most inversely correlated.

Using some of the PerfectStorm pairs indicators, I designed a simple strategy to take advantage of this correlation and the indicators dictated which of the two securities to be long at any given time. Another use would be to be short the other security in a pure pairs play.

Red double lines on the bottom  part of the chart dictates to be long the red security SPY. Green double lines to be long the green security BRK.B.

I started the exercise on December 18th 2012 and ended it on Friday November 22, 2013. I purchased the security the day after the signal at the high of the day and sold it on the day after the indicator changed direction at the low of that day. Examples of shorts were on the low for initiation and the high for the cover. The long only trade generated an absolute return of 34 %. The pair trade, long the stronger security and short the weak security, showed an absolute return of 15% over the same period.

 

 

 

Swing Trading TBT versus SPY October 16, 2013

In todays market environment, the talks between The White House, Senate, and The House of Representatives, two ETF’s are reacting to most every announcement of success and/or failure of negotiations.

The SPY ETF represents the S&P 500 index. The S&P , according to the ‘talking heads’ will rise once the Debt limit talks lead to an increase in the National Debt limit. The same commentators also believe that the S&P will decline if the Debt Limit talks lead to some kind of so called default in our payments.

At the same time, if the Debt limit is not increased and the U.S. Treasury is forced to make choices in payments and a default in payments is somehow imminent, interest rates are, according to the same ‘talking heads’ will rise. If rates increase, then TBT, the Pro Shares Ultra Short 20+ Treasury will increase in value.

The ultimate pair to day trade, as news ebbs and flows is the TPT-SPY pair.

They should fluctuate in opposite directions.

The following chart of the 3 minute price action of the pair should be of illustrative value.

TBT-SPY 3 Minute 10-16-13