This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Paired ETFs Strategy Can Smooth Volatility

Given the recent stress test in the market, I thought it might be worthwhile to revisit an ETF strategy I explored last month : pairing a sector ETF with an inverse sector ETF so that the long holding went up a little more than the inverse ETF went down as the market moved higher over time.

The idea was to reap price appreciation of a few percent and some yield from both holdings. The goal was to try to capture most of the market's return with only a small fraction of the risk.

It seems to have delivered the desired results. Even better, it can work for several sectors, and may find more applications as ETF offerings expand.

In my initial column, I looked at the usually high-yielding financial sector. I paired the WisdomTree International Financial Sector Fund (DRF) with the ProShares UltraShort Financials Fund (SKF), and looked at putting $20,000 into DRF and $10,000 into SKF.

If an investor had entered this pair on Feb. 26 (the day before the big dip started) at the open, he could have bought 698 shares of DRF at $28.62 and 145 shares of SKF at $68.58, making the invested amount $29,920.86. At the close on March 9, two weeks later, DRF closed at $27.43, down 4.1%; SKF closed the same session at $74.39, up 8.4%.

In dollars and sense, the combo was worth $29,932.69, up $11.32. During the same two-week stretch, the S&P 500 was down 3.3%. I'd say that judging by this small sample, the concept seems to work, and it sure was tested during that particular "dip."

Quite a Test
The financial sector ETF pair trade survived the market's meltdown

The concept stands up (so far, anyway) in other sectors, such as the utility sector. Take a look at the pairing of the WisdomTree International Utilities Fund (DBU) and the ProShares UltraShort Utilities Fund (SDP) during the same time frame and investment size:

Utilitarian Pairing
This combination would've worked well, too

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
SDP $41.86 3.00%
DBU $15.00 -0.60%
DHS $56.87 -1.50%
SKF $61.01 6.20%
AAPL $94.19 0.18%


Chart of I:DJI
DOW 15,878.17 -326.80 -2.02%
S&P 500 1,844.58 -35.47 -1.89%
NASDAQ 4,264.5230 -98.6210 -2.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs