Correlation: 0.70 · Cointegrated: yes
Z-score: -1.58 entry / -1.19 rolling
Half-life 1.2h · Hurst 0.91 · Hedge ratio 0.30
Pair volatility: 40.98%
Backtest: 68.75% win · Sharpe 1.83 · 0.39% return · 0.58% max drawdown
Pair Analysis: Long SMH / Short WDC
- Roll Z-Score (1h): -1.32
- Roll Z-Score (4h): -1.79
- Roll Z-Score (1d): -1.40
- Correlation: 0.70 (1h) to 0.77 (4h)
- Hedge Ratio (4h): 0.415 (Sizing: 41.5% SMH / 58.5% WDC)
- Quant-Optimal Direction: Long SMH / Short WDC (Aligned with user intent)
Setup Remark:
- Mean Reversion: The pair is currently trading at a significant discount (z-score < -1.3 across all timeframes), indicating SMH is statistically "cheap" relative to WDC. The setup is well-aligned with a mean-reversion strategy.
- Sector Context: The broader semiconductor sector remains bullish, driven by sustained AI and data center demand. The lack of retail froth suggests institutional accumulation, which may support a continued rally in the sector ETF (SMH).
- Risk Note: While the statistical setup is strong, WDC is a specific memory-focused play that can decouple from the broader SMH basket during earnings or memory-cycle shifts. Monitor for idiosyncratic news on WDC that could invalidate the correlation.
SMH
WDC