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I want to setup a pairs trade with the Japanese yen as the quote currency and Mexican peso as the basis currency. (long MXP vs JPY)

2 /M6J contracts, notional is 1,250,000 JPY = 10966.5*2 = 21933 USD equivalent

1 /6M contract notional is 500,000 MXP = 23934.75 USD equivalent

Would I be short 2 /M6J and long 1 /6M? Would the volatility of this trade be roughly around the historical volatility of the japanese yen versus the mexican peso?

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  • $\begingroup$ Your calculation seems correct. Because $21933 \approx 23934$ you would have little exposure to USD and would be for all practical purposes long MXP and short JPY. Maybe someone else can double-check. $\endgroup$
    – nbbo2
    Nov 3, 2021 at 16:25
  • $\begingroup$ Great! How about the volatility portion? $\endgroup$
    – JamieC113
    Nov 3, 2021 at 19:40
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    $\begingroup$ You can download the data from the NY Fed (there are other free sources) and do the calculation for realised vol. apps.newyorkfed.org/markets/autorates/fxrates/external/home. No guarantee future realised will look similar, of course. $\endgroup$
    – user42108
    Nov 3, 2021 at 20:08
  • $\begingroup$ is there a way to get non-dollar fx rates from the fed? I can only find them in dollar terms $\endgroup$
    – JamieC113
    Nov 3, 2021 at 20:42
  • $\begingroup$ Just calculate the cross. $\endgroup$
    – user42108
    Nov 3, 2021 at 22:09

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