There are many examples of related prices that move in the same way. It is normal because many assets are related (due to technological, behavioral, natural, political reasons) and some events affect many of them simultaneously. But what about the efficiency of these relationships? Latter may be very complex and nonlinear. The idea is simple – to find related pairs of assets that look good separately, but considered together, contain opportunities.
For example, what if the relationship leads to convex dependence between prices? If the first price goes up, the second price responds with a strong upward movement. If the first price goes down, the second responds with a weak downward movement. In this case, it is possible to create arbitrage portfolios – that always win. Even if the relationship is not strong and exists on average or in certain situations, it is possible to make use of it.
Relativity of prices
Here I present a hypothesis that price efficiency is a relative conception. Efficiency depends on what you want to maximize. On efficient market prices are optimized to the goal. For example, price should not allow “free lunch”, i.e. making more than risk-free profit without taking a risk. If the price is higher then demand rises and the price goes down. If the price is lower then demand falls and the price goes up.
But what if different people have different goals? If you want to make more euro then you have increased expectations of return from investments into USA companies comparing to EU companies. Moreover, is the amount of currency what do you want the most? Maybe you want to consume more goods and services instead of currency? If so then, in theory, there are strategies that allow you to earn what you want.