Oil vs gas

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Recently, friend of my, got investment advise from his broker – long gas, because the price of gas is very low compared to oil. The broker didn’t indicate neither profit target or stop loss…
I got hooked on the idea.

First of all, I ran linear regression on monthly prices of oil and gas from 01-12-1993 to 01-09-2009. I was skeptical about ‘oil vs gas’ idea, but after seeing this graph it became interesting. R-Square is high 0.7385. Check this out: (the prices are adjusted with log())

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The spread between oil and gas indicates, that it was very high back in September.

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Finally, I took two funds: USO (oil’s ETF) and UNG (gas’s ETF) to see how does it look on real time (ok ok daily) data. As we can see, in late September the spread reached a new high. The problem is, that data set is very limited and we can see only ~3 years.
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And the last one – green stands for oil’s log(price) and blue one for gas’s log(price).

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