Pair is strongly reverting towards the mean with accelerating velocity and stable volatility.
Regime: STRONG_REVERSION (high confidence)
Correlation: 0.76 · Cointegrated: yes
Z-score: 1.90 entry / 3.85 rolling
Half-life 0.7h · Hurst 0.91 · Hedge ratio 1.77
Pair volatility: 27.19%
Backtest: 83.33% win · Sharpe 3.80 · 0.92% return · 0.41% max drawdown
Pair Analysis: Long SMH / Short LRCX
This setup shows significant timeframe divergence, with short-term mean reversion signals conflicting with longer-term trends.
- Roll Z-Score (LRCX/SMH):
- 1h: 3.85 (LRCX rich vs SMH; supports your Long SMH / Short LRCX direction)
- 4h: -1.19 (SMH rich vs LRCX; suggests mean reversion would favor Short SMH / Long LRCX)
- 1d: -0.67 (SMH rich vs LRCX; suggests mean reversion would favor Short SMH / Long LRCX)
- Correlation: 0.76 (1h) to 0.92 (1d) — high correlation indicates the pair moves together, making the 1h divergence (z=3.85) a potentially sharp, short-lived anomaly.
- Hedge Ratio: ~1.77 (1h) to 1.99 (1d).
- Sentiment: The semiconductor sector is currently "mixed" and cautious. Market participants are exhibiting a "show-me" dynamic, where structural AI demand is being weighed against peak-cycle growth skepticism.
Remark:
The 1h z-score of 3.85 indicates a sharp, localized divergence where LRCX has become statistically "rich" relative to SMH, providing a strong tactical entry for your Long SMH / Short LRCX direction. However, the 4h and 1d z-scores are negative, indicating that on a broader timeframe, SMH is already "rich" relative to LRCX. You are effectively betting on a short-term mean reversion (LRCX cooling off) while fighting the longer-term trend (SMH potentially being overextended). Given the cautious sector sentiment, ensure tight risk management, as the 1h signal may be a volatile outlier rather than a sustained trend reversal.
Note: Both assets are available on Hyperliquid (SMH on xyz, LRCX on para).
SMH
LRCX