Humanigen Inc (HGENQ)

[DonDonDonDon]

You were satisfied thinking only that HGEN followed XBI. A "their charts match" kind of deduction.

But there has to be a mechanism by which that happens. And it has to involve a lot of companies. What I termed as 'Price Change Parity' is that mechanism, in my opinion. If you have an alternate explanation for why the charts match for XBI and HGEN, if they still do, I'd like to hear it.

https://stockmarketmba.com/ETFmechanics.php

Arbitrage is a common investing term for the practice of taking advantage of a price differential between two or more markets. An arbitrage opportunity is inherent in the ETF structure. The authorized participants can make money trading the ETF shares, and in doing so, they benefit everyone by keeping the market price of the ETF close to the NAV of the ETF.

Here is how it works. At any time, the authorized participants can buy the shares of the securities included in the ETF's creation basket, and give them to the ETF in exchange for shares of the ETF priced at the ETF's NAV. The authorized participants can then sell those ETF shares on the open market. Even though the authorized participants pay a small transaction fee for this exchange, they can make money on the exchange if the ETF's shares are trading at a premium to the ETF's NAV. The expected result of the arbitrage activity is that the market value of the ETF moves back in line with the ETF’s NAV per share , as more shares of the ETF are now available to be bought and sold.

For U.S. stocks that are highly liquid, the arbitrage by the authorized participants is highly effective. The authorized participants, who are sophisticated traders, can easily execute these creation basket exchanges, even if the margins at first blush seem pretty small. The process is not quite as effective for other securities that are not as liquid, such as bonds or global equities, as it is more difficult for the authorized participants to easily and cheaply accumulate the securities in the creation basket. The arbitrage process isn't perfect, but it does generally work. You can visit the website of an ETF to compare at any time the market price of the ETF to the ETF's NAV.

By way of comparison, closed-end investment funds, which are also traded on an exchange, do not have the authorized participant and arbitrage setup of an ETF. They are called "closed-end" funds because they do not issue or redeem shares in response to market trading.