Arbitrage Strategy – Crude Oil vs RD Shell

An arbitrage idea that I would like to share for feedback.

My idea:

If you short $OIL, for example $100, no leverage, then you will receive annual fees of 20% at eToro… If you go long $RDS.B , also $100, then you will receive annual dividends of at least 5% (assuming Shell maintains it dividend policy…that’s the question).

Based on the chart, both assets move in correlation to each other, makes sense, so the price change in $OIL  if you have a short position, will be hedged by an opposite return in the share price (long), so a simple hedge, no 100% correlation though.

If they keep correlating the way they did, see chart below, you can make 25% in fees and dividends per year.

Risks: this strategy could produce a loss if Shell decides to decrease their dividends to strengthen their capital structure while Oil moves up. If the deviation between the two is more than 25% in opposite direction of your positions, then this trade will return negatively.

What do you think?

Shell is the blue line, not a 100% perfect match, but close enough.


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