Technical Analysis of the spread (right chart):
In the last 6 month KO move together very closely and has a maximal correlation with SPY. This means it's profitable when the relative value between the two assets is perturbed from equilibrium, I can take a contrarian position and profit from the spread trading as the prices revert back to their long-run mean.
The trade should be opposite to the “gap”. SPY has performed better than KO, in order to close the “gap” Coca Cola will now perform better in the next 6 month.
In the last 6 month KO move together very closely and has a maximal correlation with SPY. This means it's profitable when the relative value between the two assets is perturbed from equilibrium, I can take a contrarian position and profit from the spread trading as the prices revert back to their long-run mean.
The trade should be opposite to the “gap”. SPY has performed better than KO, in order to close the “gap” Coca Cola will now perform better in the next 6 month.