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TheStreet Open House

2 Pair Trades to Protect Your Portfolio

MINNEAPOLIS (Stockpickr) -- Oh, how quickly investors forget! While it might have worked for some to ignore an absolute-return strategy as stock values have gone up over the past two years, it's certainly clear now the value of pair trades to any portfolio. The current market environment is screaming for investors to devote some -- if not all - of their portfolios to absolute returns.

The gains of the past couple of years have proven to be unsustainable. Just when you thought it was safe to enter the market, boom!, there comes another sharp move downward. Frighteningly, this selloff has come mostly out of the blue. Sure, the doom-and-gloom crowd will tell you that a crash was coming, but the majority opinion this summer was that stocks would continue their ascent thanks to strong earnings and a growing global economy.

Fear of a global financial crisis stemming from debt issues in Europe destroyed the dream of higher stock prices. The winners in the current environment have been investors in gold and short-sellers in stocks. Absolute-return investors using a long/short approach to the market have also done well.

Related: 6 Low-Volatility Stocks for a Volatile Market

Recent pair trade recommendations made here have fared as expected. The two pair trades of SuperValu (SVU) and Verizon (VZ) on the long side with Whole Foods (WFMI) and 3M (MMM) on the short side are down fractionally since Aug. 5. The S&P 500 is down over 2% during the same period.

From Aug. 1, the pair trades of Cornerstone OnDemand (CSOD) and Zipcar (ZIP) longs and LinkedIn (LNKD) and Pandora (P) shorts netted investors a positive return of about 7%. The S&P 500 lost over 9% during the same period. Not as productive, but just as effective were the July 25 pair trades of Pepsi (PEP) andGeneral Motors (GM) long against Coca-Cola (KO) and Ford (F) short. The fractional loss of these trades stood strong against a market loss of about 13% for the S&P 500.

Pair trades are a powerful defense in a volatile market. Given the uncertainties around the globe investors would be wise to continue using the strategy to protect hard earned dollars in a portfolio.

Here are two more pair trades to consider.

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