Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.65 · Cointegrated: yes
Z-score: -1.90 entry / -2.79 rolling
Half-life 2.2h · Hurst 0.93 · Hedge ratio 0.83
Pair volatility: 16.95%
Backtest: 66.67% win · Sharpe 0.97 · 0.28% return · 0.51% max drawdown
Pair Analysis: Long EWJ / Short JP225
This pair is currently the #1 active signal on the platform, indicating strong statistical mean-reversion potential.
- Roll Z-Score: -2.79 (1h) | -1.55 (4h) | -1.29 (1d)
- Interpretation: The negative z-score indicates the spread is currently "cheap" (EWJ is trading at a discount relative to JP225). The 1h z-score of -2.79 suggests a significant deviation from the mean, supporting a long-EWJ/short-JP225 entry.
- Correlation: 0.65 (1h) to 0.85 (1d)
- Interpretation: Moderate-to-high correlation confirms these assets move together, making them suitable for a pair trade.
- Half-Life: ~2.2 days (1h)
- Interpretation: The mean-reversion process is relatively slow, suggesting this is a position trade rather than a quick scalp.
- Hedge Weights (4h): 65.3% EWJ / 34.7% JP225
- Note: Use these 4h weights for sizing to avoid the noise inherent in 1h data.
Remark:
The setup is statistically compelling, with the 1h z-score showing a deep deviation that favors a long-EWJ/short-JP225 position. As a Japan-equity vs. Japan-index pair, this trade effectively isolates the relative performance of the broader market index against the ETF, removing directional beta. Given the lack of specific sentiment data, rely on the statistical signal: the trade is currently "cheap" and aligned with the quant-optimal direction. Ensure you monitor the 4h hedge weights for sizing, as the 1h data is more volatile.
EWJ
JP225