The additional five cloud stocks, along with the FAANG stocks, make an excellent playing field for trading on technology, writes Paul Cretien.
In “FAANG Stocks Pairs Trading” we looked at five popular technology stocks: Facebook (FB) Amazon (AMZN) Apple (AAPL), Netflix (NFLX), and Google (GOOG). FAANG stocks in 2018 (chart 1) shows the price performance of these five stocks from January 2018 to January 2019. Now we have another group of stocks concerned with cloud technology. The new stocks (see chart 2) include Adobe (ADBE), Autodesk (ADSK), Red Hat (RHT), Sales Force (CRM), and Microsoft (MSFT).
There are several differences to note between the two charts. The first difference is in stock price changes over the period of one year. For the new group the percentage price increases for the year (February to February) range from approximately 35% to 45%. These increases compare with the FAANG stock group whose price changes for the year included three that were negative, one with positive 30% and another with positive 50%. Overall, the new group of five cloud stocks was more profitable with less risk than the FAANG set of technology stocks.
The most notable individual price change is associated with Red Hat. On Oct. 28, 2018, IBM announced that it would purchase the Red Hat for $34 billion. This price will result in approximately $190 per share. Shown on “Five Cloud Stocks,” the announcement by of the purchase caused the shares of Red Hat to immediately increase from a negative change of almost 10% from the first of February, 2018, to positive 35%. Red Hat completed the time period in early February 2019 at plus 40 % from the start in February 2018.
“Five Cloud Stocks” also shows that Sales Force was a top performer at approximately 55% for the year, while Microsoft, Autodesk, and Adobe closed the time period near the first of February, 2019, between 25% and 35%.
The charts – especially that of Red Hat – show the advantage of open source software, with expertise is that area of technology something that IBM is willing to purchase in order to expand its own business ventures. Red Hat stock price was $178.15 at 12:30 pm February 4, 2019. This is short of the $190 inferred from the IBM purchase price, but it may rise to that level during the next few months.
“Pairs Trade: Autodesk and Sales Force” (Chart 3) shows several times during the year when the stock prices were separated and then came back together. Sales Force is the more stable of the two while Autodesk moves to eliminate a temporary distance between them. Although they are currently together in the first week of February, look for some separation in the near future that could result in a profit from trading the pair.
The additional five cloud stocks, along with the FAANG stocks, make an excellent playing field for trading on technology. This is where the future exists for many modern businesses.
