In a new report, Nomura analyst Steven Chubak suggests two potential financial pair trades for investors who want to hedge against market weakness in 2016.
Trade 1: Long Goldman Sachs Group Inc GS/Short JPMorgan Chase & Co. JPM
Chubak sees similar downside risks for the two stocks but believes that Goldman has significantly more upside. “We are upgrading GS as we see a better risk/reward skew vs. JPM,” he explains.
In the report, Nomura upgraded Goldman from Neutral to Buy and downgraded JPMorgan from Buy to Neutral.
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Trade 2: Long Charles Schwab Corp SCHW/Short Raymond James Financial, Inc. RJF
Chubak justifies the second pair trade using similar logic. “While SCHW is not immune to bear case impacts (e.g., no further rate hikes, equity market declines), our analysis yields only slightly more downside vs. RJF, with much greater upside potential at SCHW as the macro backdrop improves.”
Nomura has upgraded Schwab from Neutral to Buy and downgraded Raymond James from Buy to Neutral.
Disclosure: the author holds no position in the stocks mentioned.
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