Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.86 · Cointegrated: yes
Z-score: -1.43 entry / -2.52 rolling
Half-life 2.1h · Hurst 0.91 · Hedge ratio 0.77
Pair volatility: 29.72%
Backtest: 73.91% win · Sharpe 0.67 · 0.50% return · 2.04% max drawdown
Pair Analysis: Long DRAM / Short MU
This setup is a mean-reversion trade betting that DRAM (the sector proxy) is undervalued relative to Micron (MU).
Statistical Diagnostics
- 1h Roll Z-Score: -2.52 (DRAM is statistically cheap relative to MU on a short-term basis).
- 4h Roll Z-Score: 0.42 (DRAM is slightly rich relative to MU on a medium-term basis).
- 1d Roll Z-Score: -1.22 (DRAM is cheap relative to MU on a daily basis).
- Correlation: 0.86–0.94 (High correlation across all timeframes, supporting the pair's validity).
- Hedge Weights (4h): 47.4% Long DRAM / 52.6% Short MU.
Sentiment & Context
- MU (Micron): Bullish sentiment driven by strong Q3 revenue growth (346% YoY) and a recent UBS upgrade.
- DRAM Sector: Bullish sentiment, bolstered by the broader chip sector performance (Micron, AMD), though caution remains around other major players like Intel and NVIDIA.
Remark
The trade is currently supported by short-term (1h) and daily (1d) mean-reversion signals, which indicate DRAM is "cheap" relative to MU. However, the 4h timeframe shows a slight divergence, suggesting the pair is currently in a transition phase. Given the strong fundamental tailwinds for Micron specifically, the "Short MU" leg carries idiosyncratic risk; ensure your sizing accounts for the potential of continued outperformance from Micron's recent earnings momentum.
Note: Z-scores are snapshots; verify recent price action as the 1h snapshot is ~1.3h old.
DRAM
MU