Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.73 · Cointegrated: yes
Z-score: 1.43 entry / 2.49 rolling
Half-life 1.3h · Hurst 0.85 · Hedge ratio 1.74
Pair volatility: 35.99%
Backtest: 60.00% win · Sharpe 1.92 · 0.38% return · 0.67% max drawdown
Pair Analysis: Long XYZ100 / Short LRCX
- Roll Z-Score (1h): 2.49 (Strong mean-reversion signal; indicates LRCX is currently rich relative to XYZ100).
- Roll Z-Score (4h): 0.15 (Neutral).
- Roll Z-Score (1d): -0.61 (Slightly negative).
- Correlation: 0.73 (1h).
- Hedge Ratio (4h): 3.554 (Sizing: ~22% XYZ100 / ~78% LRCX).
Remark:
This setup is currently driven by a significant short-term divergence (1h Z-score of 2.49), suggesting LRCX is overextended relative to the XYZ100 index. While the 1h signal strongly supports your directional intent (Long XYZ100 / Short LRCX), the longer-term 4h and 1d Z-scores are neutral-to-negative, indicating this is a tactical, short-term mean-reversion play rather than a structural trend. Sentiment for XYZ100 is bullish, which may provide a tailwind for the long leg, but monitor the 1h Z-score closely for mean reversion, as the lack of longer-term alignment suggests limited room for the spread to run.
XYZ100
LRCX