Possibility of Pairs Trading?

Earnings Snapshot

Last week two major chipmakers, Intel Corporation and Advanced Micro Devices provided their Q2 FY2018 Earnings. We wish we could have got some strong signal/indication from both stocks for potentially predicting the NVIDIA Corporation’s earnings which is expected to be released on 16 August 2018. Difference between the Pre-earning stock price and Friday’s closing was – for Intel -8.63% (stock price fell from $52.17 to $47.67); for AMD +17.9% (stock price rising from $16.05 to $18.93). The Pairs Trading is a market neutral trading strategy enabling traders to profit from virtually any market conditions: uptrend, downtrend, or sideways movement. This strategy is categorized as a statistical arbitrage and convergence trading strategy

INTC Earnings

Intel provided the earnings after market hours on Thursday. The Company beat the consensus expectations on Revenue and Earnings per Share (EPS) front. However, the analyst community was not happy the business operation numbers. Intel fell short on the data-center revenue growth, management uncertainties and the delays in the rollout of new products.

AMD Earnings

As against to this, AMD gave the best earnings in last seven years. On the Earnings call, AMD CEO Lisa Su commented as –

We ended the first half of 2018 strong delivering our fourth consecutive quarter of double-digit year-over-year revenue growth, driven by increased demand for our high-performance products. Second quarter revenue of $1.76 billion grew 53% year-over-year and gross margin improved more than three percentage points, resulting in our highest quarterly net income in seven years.

A year ago, in the midst of the bitcoin carnival, every GPU chipmaker was enjoying the higher demands. For Q4 FY2018, AMD share price jumped after it attained revenue estimates when cryptocurrency miners snapped up the firm’s graphics cards.

With the considerable drop in Bitcoin and extensive speculations in the crypto, demand was expected to remain subdued for the overall sector. AMD CEO confirmed the same as –

So for Q2, we were approximately 6% of revenue for blockchain. For Q3, we’re planning very little blockchain. So we expected it to be down in the second half, but we’re planning very little in Q3. So if you update that on a full-year basis for 2018 blockchain will be lower than what we had previously discussed in the last earnings call.

Opportunity for Pairs Trading Strategy –

Because of the earnings, both stock gave the clear breakouts on longer time horizon. A pairs trading strategy. It will capture the divergence among the Intel and AMD.

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