pair-trading

To calculate the Z-score for pair trading, you compute the ratio between two correlated assets' prices and use rolling windows to measure deviations from the historical mean, generating buy or sell signals.

Mean reversion in algorithmic trading is the assumption that asset price relationships will return to their historical average, allowing you to profit by analyzing the spread between two correlated assets.

Yes, you can apply pair trading signals to both stocks and crypto. The strategy analyzes asset price relationships for mean reversion opportunities across both traditional and cryptocurrency markets.

Yes, you need pandas and numpy to build a pair trading script. These dependencies are required to process historical asset data and perform the mathematical ratio and Z-score calculations.

You generate buy and sell signals from asset price ratios by applying rolling windows to calculate Z-scores, which trigger trades when the correlated assets deviate significantly from their historical mean.

A limitation of using Z-score thresholds for crypto pair trading is that it assumes genuine mean reversion; if the underlying correlation between the two assets breaks down, the price ratio may not revert.