MINNEAPOLIS (Stockpickr) -- The general idea behind the absolute return approach of pair trades is to manage risk -- not to generate monster gains. But that doesn't mean big gains are out of the question.Case in point is my most recent pair trade, which included a short of much-maligned Research In Motion ( RIMM). Two days after my recommendation, Research In Motion released guidance that widely missed Wall Street expectations. Already depressed, shares fell approximately 20% in trading the day after the news. Who says managing risk has to be boring? The nice thing about pair trades is that with a market moving in different directions, there are always opportunities to find stocks to buy long paired against stocks to sell short. Recently we've seen oil prices swing wildly. With the volatility, stocks in the oil group present an interesting pair trade opportunity. Related: Heavily Shorted Stocks That Could Pop on Earnings In addition, last week's earnings beat from FedEx ( FDX - Get Report) portends well for the market in advance of second-quarter earnings season. The stock market is solidly in negative territory over the last few months. Investors are anxious about the economy and worried about reduced profit expectations going forward. FedEx noted that the economy had indeed experienced a soft patch in the second quarter, but the company was able to beat expectations. More important, guidance going forward was strong and showed no sign of possible deleterious effects of inflation and weak economy. With markets bouncing along technical lows, conditions are ripe for a bounce. A pair trade will help offset potential losses in the off chance that earnings miss expectations. Shorting a weaker player in a pair trade is a great way to reduce risk while still capturing any upside move in stocks. Here are two pair trades to consider.
Long Chevron/Short Tesoro Petroleum
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