pair-trading

Mean-reversion signals are generated by computing the Z-score of the price ratio between two correlated assets, triggering long or short positions when entry and exit thresholds are met. The engine requires aligned timestamps and a lookback window to calculate rolling mean and standard deviation.

Pair trading is a strategy that exploits mean-reversion opportunities between two correlated assets. The Z-score approach calculates the standard deviations of their price ratio from the rolling mean, generating long or short signals to execute a balanced hedge with equal capital allocation.

Yes, the engine applies to any two instruments with aligned price histories, including related stocks or crypto assets. It requires exactly two instruments to generate long and short signals for a neutral hedge with equal-weight allocation to each leg.

You need exactly two instruments with aligned timestamps, a lookback window, and entry or exit Z-score parameters. If the data is insufficient to calculate the rolling statistics, the engine defaults to flat signals to prevent trading.

Flat signals occur when data is insufficient to calculate the rolling mean and standard deviation for the price ratio Z-score. This happens if the aligned timestamp history is shorter than the required lookback window or if entry and exit parameters are not properly defined.

To set up a neutral hedge, load two correlated instruments and run the engine to generate signals based on the Z-score of their price ratio. The system applies equal-weight allocation to each leg, maintaining a balanced long and short approach.