First, and most obvious, I feel a paired trade is about selecting one stock that you think will outperform and another that you feel is destined to underperform. Another way to think about this is to go long a stock that is trading at a large discount and short another stock in the same industry that is trading at a smaller discount (or a premium).

Second, I think you should always look at the balance sheets of both companies you are considering for a paired trade. If one has more debt and is more leveraged than the other, this might be a negative or positive feature. If one company has a finance division that lends money to enable its consumers to purchase its products, this could very well be a negative feature when people are losing jobs and out of work, especially when compared to the company whose customers pay mostly in cash.

Third, look at the management and the board of directors of each company. Does one company seem to be more shareholder-friendly than the other? Does one company’s board seem to be less independent and more complacent than the other company’s board? A complacent and dependent board is definitely a negative quality.

Finally, considering the macro issues should probably be one of the last things you should do. In the case of the Walmart/Nordstrom paired trade, the macro issue to consider is that for the foreseeable future (if there is such a thing!) its very likely people are going to be spending less on luxury items and spending more time on saving money by going to places like Walmart.