Pair is strongly reverting towards the mean with accelerating velocity and stable volatility.
Regime: STRONG_REVERSION (high confidence)
Correlation: 0.84 · Cointegrated: yes
Z-score: 1.58 entry / 1.90 rolling
Half-life 4.5h · Hurst 0.92 · Hedge ratio 1.09
Pair volatility: 31.95%
Backtest: 45.45% win · Sharpe -2.81 · -1.72% return · 1.97% max drawdown
Pair Analysis: Long VIRTUAL / Short LINK
This setup is a relative value play betting that LINK will underperform VIRTUAL (or revert to the mean) as the spread is currently stretched.
- Roll Z-Score: 1.90 (1h) / 2.59 (4h) / 1.49 (1d).
- Interpretation: The positive z-scores indicate that LINK is currently "rich" relative to VIRTUAL. The spread is statistically extended, supporting the Long VIRTUAL / Short LINK direction.
- Correlation: 0.84 (1h) / 0.82 (4h) / 0.76 (1d).
- Interpretation: Strong correlation, which is favorable for a pair trade, though it has weakened slightly on the daily timeframe.
- Hedge Weights (4h): 40.4% VIRTUAL / 59.6% LINK.
- Note: Use these weights for sizing.
- Sentiment:
- VIRTUAL: Bearish (concerns over selling pressure).
- LINK: Bearish (stagnant sentiment, bearish prediction market outlook).
- Context: Both assets are facing bearish headwinds. This pair trade is essentially a "race to the bottom" where you are betting that LINK's stagnation will cause it to drop more significantly or recover less effectively than VIRTUAL.
Summary: The statistical setup (high positive z-score) strongly supports the Long VIRTUAL / Short LINK trade, as the spread is currently wide. However, the bearish sentiment on both legs suggests a high-risk environment where both assets could decline simultaneously, potentially impacting the spread's stability. Monitor the 4h z-score closely, as it is currently the most extended.
VIRTUAL
LINK