Pair is strongly diverging away from the mean. High risk of further deviation.
Regime: STRONG_DIVERGENCE (low confidence)
Correlation: 0.70 · Cointegrated: yes
Z-score: -1.60 entry / -2.69 rolling
Half-life 1.0h · Hurst 0.92 · Hedge ratio 0.42
Pair volatility: 41.58%
Backtest: 64.29% win · Sharpe 1.11 · 0.23% return · 0.58% max drawdown
Pair Analysis: Long SMH / Short WDC
This setup is currently aligned with the quant-optimal direction. The pair shows significant divergence on the 1-hour timeframe, suggesting SMH is currently "cheap" relative to WDC.
Pair Statistics
- 1h Roll Z-Score: -2.69 (Snapshot age: 1.3h)
- 4h Roll Z-Score: -0.72 (Snapshot age: 6.3h)
- 1d Roll Z-Score: -1.32 (Snapshot age: 1.6d)
- Correlation: 0.70 (1h)
- Cointegration: True (1h, 1d)
- Half-Life: 25h (1h timeframe)
Analysis & Sentiment
- Technical Divergence: The 1-hour z-score of -2.69 indicates a strong statistical deviation where SMH has underperformed WDC relative to their historical mean. This suggests a mean-reversion opportunity favoring the Long SMH / Short WDC trade.
- Sector Context: While specific sentiment for this pair is unavailable, the broader semiconductor/AI chip sector (NVDA, AMD, MU, INTC) is currently showing bullish sentiment. The sector is experiencing a "reset" rather than a fundamental breakdown, which supports a long-bias on the broader SMH ETF relative to individual components like WDC.
- Note on Sizing: Hedge weights for sizing should be derived from the 4h timeframe (68% SMH / 32% WDC) to avoid the noise inherent in 1h weights.
Disclaimer: Z-scores are snapshots and may lag intraday price action. Verify current spot prices before execution.
SMH
WDC