Strategies · Core
Pairs Trading with Country ETFs
Mean-revert spreads between country (or regional) ETFs that usually travel together — pairs at the index layer.
Definition
Pair countries on region, beta, or cointegration (e.g. two EM or two Europe). Trade the spread when it is wide; flatten when it converges. Daily-ish. FX and different holiday calendars are part of the residual.
Why it matters
Cleaner than stock pairs (liquidity) and still a relative-value book. A structural decoupling is the regime risk.
Case
A Europe pair through a single-country political shock. The z-score was the event, not noise.
How to read it
Hedge ratio (beta vs dollar), calendar, and a hard stop. Country pairs are still one-factor Europe/EM bets if you are not careful.
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