These extremes are very difficult to be traded because in the short term they can get more extreme but in the long term they usually revert to a mean value.
Example number 1: SP500 ETF vs Gold Miners ETF
Today you need 11.3 GDX to get 1 SPY, two years ago you needed just 2 GDX to get one SPY.
Restless buying of US blue chips and liquidation of gold miners is driving the SPY/GDX spread to the sky. The spread chart is indeed going parabolic.... Things can get even worse but in the long term when a group of stocks is so cheap compared to the rest usually a mean reversion take place.
Example number 2: SP500 ETF vs Russian stocks ETF
Today you need 10.5 RSX to get 1 SPY, three years ago you needed just 3 RSX to get one SPY.
Restless buying of US blue chips and liquidation of Russian stocks is driving the SPY/RSX spread to the sky. The spread chart is indeed going parabolic.... Things can get even worse but in the long term when a country is so cheap compared to another usually a mean reversion take place. Today nobody wants to invest in Russia and everybody wants to hold US blue chips....in a couple of years maybe we will see the opposite mania...who knows.
These spread are very volatile and very risky, stay away from them, they are just for the braves.
I am posting these charts only for my own reference (I want to take a look back at them in few months from now), it is not an investment advice, seriously normal investors should really stay away from this kind of spreads.
Have a great week-end!