In the chart below, the potential for profit can be identified when the price ratio hits its first or second deviation.
FORBES: The Secret To Finding Profit In Pairs Trading
There have been just 50 occasions since 1973 when this ratio was greater than one standard deviation from that average, as it is now.
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And when the ratio is as low as 0.911, one standard deviation, the market is signaling that small cap is relatively cheap and should outperform in the coming months.
FORBES: When large cap is relatively cheap it will outperform small cap
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