Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.61 · Cointegrated: yes
Z-score: -2.21 entry / -2.31 rolling
Half-life 1.0h · Hurst 0.86 · Hedge ratio 0.98
Pair volatility: 45.98%
Backtest: 75.00% win · Sharpe 2.30 · 0.75% return · 1.31% max drawdown
Pair Analysis: Long LRCX / Short SMSN
- Roll Z-Score: -2.31 (1h), -1.45 (4h), -1.42 (1d)
- Correlation: 0.61 (1h)
- Cointegration: Yes (1h, 4h)
- Half-Life: ~24h (1h), ~12h (4h)
- Hedge Ratio: 0.98 (4h sizing)
Analysis & Sentiment:
- Mean Reversion: The 1h roll z-score of -2.31 indicates the spread is significantly stretched, with LRCX currently "cheap" relative to SMSN. This setup aligns with a mean-reversion strategy (Long LRCX / Short SMSN).
- Sector Context: Semiconductor sentiment is currently mixed and bifurcated. The market is exhibiting a "show-me" dynamic where structural AI demand is being weighed against peak-cycle growth skepticism.
- Technical Note: The pair shows strong cointegration on shorter timeframes (1h, 4h), supporting the validity of the spread. The 1h z-score is relatively fresh (~1.3h old), though given the high volatility in the chip sector, verify current spot prices before entry to ensure the z-score hasn't drifted significantly.
- Risk: The sector is prone to rapid, news-driven reversals. The "cautious" sentiment suggests that while the statistical setup is compelling, the trade is sensitive to broader capital-allocation anxiety across the chip complex.
LRCX
SMSN