My article for TraderPlanet this week takes a look at the ratio chart between $EFA and $FXI. I show how the RSI indicator can be used to get an early warning to a possible shift in relative performance between these two ETFs.
Here’s a piece:
The iShares MSCI EAEFE Index ETF ($EFA) typically has a positive correlation with the iShares China 25 Index ETF ($FXI). The 20-day correlation currently sits just over .70 and has only dipped negative three times momentarily in the last year. While the correlation between these two foreign ETFs is positive they still can be looked at through a lens of mean-reversion. The way this can be done is by looking at the Relative Strength Index (RSI) of the ratio created by $EFA and $FXI.
Read the rest: China: Minimize Risk with Pairs Trade $EFA (TraderPlanet)
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.
