Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.71 · Cointegrated: yes
Z-score: 3.19 entry / 5.69 rolling
Half-life 0.5h · Hurst 0.87 · Hedge ratio 1.87
Pair volatility: 42.25%
Backtest: 71.43% win · Sharpe 3.06 · 1.95% return · 1.21% max drawdown
Pair Analysis: Long SMH / Short AAOI
- Roll Z-Score (1h): 5.69 (AAOI is significantly rich relative to SMH)
- Roll Z-Score (4h): 0.83
- Correlation: 0.71
- Hedge Ratio (4h): 1.83 (Size ~1.83 units of AAOI for every 1 unit of SMH)
- Cointegration: True
Analysis:
The 1h Z-score of 5.69 indicates a strong short-term divergence where AAOI has significantly outperformed SMH, pushing the spread to an extreme. The 4h Z-score (0.83) suggests this is a sharp, recent move rather than a long-term trend, as the daily Z-score is near neutral (-0.02).
Note:
- Execution: SMH is listed on the
xyz deployer and AAOI on the para deployer. Both settle in USDC, but ensure you have sufficient collateral on both deployers to cover the respective legs.
- Sentiment: No specific sentiment data is currently available for these assets.
- Risk: The high 1h Z-score suggests a potential mean-reversion opportunity, but the lower 4h/1d Z-scores imply the pair is not historically overextended. Ensure your stop-loss accounts for the high volatility typical of individual stocks like AAOI relative to the broader semiconductor ETF (SMH).
SMH
AAOI