Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.86 · Cointegrated: yes
Z-score: -1.59 entry / -2.88 rolling
Half-life 0.9h · Hurst 0.92 · Hedge ratio 0.26
Pair volatility: 7.17%
Backtest: 18.18% win · Sharpe -9.91 · -0.35% return · 0.35% max drawdown
Pair Analysis: Long SP500 / Short USTECH
- Roll Z-Score: -2.88 (1h) / -1.24 (4h)
- Interpretation: The spread is currently trading significantly below its mean (negative z-score), suggesting SP500 is statistically "cheap" relative to USTECH. This aligns with a mean-reversion strategy of longing the spread.
- Correlation: 0.86 (1h) / 0.87 (4h)
- Interpretation: High correlation indicates the two indices move in lockstep, making this a tight, low-beta pair trade suitable for spread capture.
- Half-Life: 23h (1h) / 8h (4h)
- Interpretation: The 4h half-life of ~8 hours suggests a relatively fast mean-reversion cycle, favoring shorter-term tactical entries.
- Sentiment:
- SP500: Bearish (Macro headwinds, rising yields, and rate-hike probability).
- USTECH: Bearish (Structural downtrend, trading below 50-day MA, and liquidation risk).
- Note: Both assets are facing bearish sentiment, which may increase volatility and reduce the reliability of historical mean-reversion patterns.
Remark:
The setup is statistically attractive for a mean-reversion play (Long SP500 / Short USTECH) given the deeply negative z-score. However, the bearish sentiment across both indices suggests a "falling knife" environment. The high correlation and fast half-life (8h) support a tactical entry, but the macro-driven bearishness on both legs warrants tight risk management, as the spread could widen further if systemic risk triggers a broader market sell-off.
SP500
USTECH