Pair is still diverging, but the momentum is slowing. A potential reversal candidate.
Regime: PEAK_DIVERGENCE (medium confidence)
Correlation: 0.76 · Cointegrated: yes
Z-score: 1.49 entry / 1.86 rolling
Half-life 0.6h · Hurst 0.92 · Hedge ratio 0.72
Pair volatility: 32.44%
Backtest: 80.65% win · Sharpe 5.33 · 2.47% return · 0.51% max drawdown
Pair Analysis: Long KR200 / Short EWY
This pair trade is a classic mean-reversion setup targeting the divergence between the KOSPI 200 index (KR200) and the iShares MSCI South Korea ETF (EWY).
- Roll Z-Score: 1.86 (1h) / 1.99 (4h)
- Interpretation: The positive Z-score indicates that EWY is currently "rich" (overvalued) relative to KR200. The trade (Long KR200 / Short EWY) is aligned with the mean-reversion signal, betting that this spread will compress.
- Correlation: 0.76 (1h) / 0.90 (4h)
- Interpretation: High correlation confirms these assets typically move in lockstep, making the current divergence a statistically significant anomaly rather than a structural decoupling.
- Half-Life: ~14 hours (1h) / ~10 hours (4h)
- Interpretation: The mean-reversion process is relatively fast, suggesting the spread tends to close within a sub-day timeframe.
- Hedge Ratio: ~0.72 (4h)
- Interpretation: For every $1.00 of KR200 long exposure, you would typically hedge with ~$0.72 of EWY short exposure to maintain a delta-neutral position.
Remark:
The setup is technically compelling, with the 4h Z-score approaching the +2.0 threshold, suggesting the spread is stretched. Because EWY is an ETF and KR200 is an index proxy, this divergence often arises from liquidity mismatches or localized market sentiment (e.g., ETF-specific flows vs. underlying index performance). Monitor for any news affecting South Korean market liquidity or ETF-specific arbitrage activity, as these are the primary drivers for this pair's mean reversion.
KR200
EWY