Pair is strongly reverting towards the mean with accelerating velocity and stable volatility.
Regime: STRONG_REVERSION (high confidence)
Correlation: 0.87 · Cointegrated: yes
Z-score: -1.88 entry / -1.92 rolling
Half-life 3.8h · Hurst 0.90 · Hedge ratio 1.07
Pair volatility: 28.78%
Backtest: 62.50% win · Sharpe 1.30 · 0.72% return · 1.10% max drawdown
Pair Analysis: Long XYZ:DRAM / Short XYZ:MU
This setup is a classic mean-reversion trade targeting a statistically cheap spread between the DRAM sector proxy and Micron Technology (MU).
- Roll Z-Score: -1.92 (1h), -1.39 (4h), -2.45 (1d).
- The spread is significantly below its historical mean across all timeframes, indicating that DRAM is currently "cheap" relative to MU.
- Correlation: 0.87 (1h) to 0.94 (1d).
- The assets remain highly correlated, supporting the validity of the pair relationship.
- Hedge Ratio (4h): 1.186 (Size ~46% DRAM / ~54% MU).
- Sentiment/News:
- MU: Bullish. Micron recently reported record Q3 revenue and EPS beats, with HBM (High Bandwidth Memory) sold out through 2026. The market views MU as structurally undervalued despite sector volatility.
- DRAM: No specific sentiment data available.
- Remark: While the statistical signal (Z-score < -1.5) strongly favors a mean-reversion long on the spread (Long DRAM / Short MU), the fundamental backdrop presents a conflict. Shorting MU—a stock with strong bullish momentum and sold-out HBM capacity—carries significant "trend risk." The trade relies on the assumption that the spread's statistical deviation is overextended and will revert, regardless of MU's individual strength. Ensure tight risk management given the bullish sentiment on the short leg.
DRAM
MU