Quantora · Quant Desk
Pairs & Spread Analyzer
The core of statistical arbitrage: find two names that move together, then trade the gaps when they drift apart. Quantora computes the hedge ratio, builds the spread, and shows its z-score over time plus how fast it tends to snap back - the mean-reversion half-life.
The hedge ratio comes from regressing A's price on B's: it's how many dollars of B offset a dollar of A, giving a market-neutral spread = A − β·B. We standardize that spread into a z-score - how many standard deviations it sits from its own average. Classic mean-reversion logic: when the z-score stretches past +2 the spread is unusually wide (A rich vs B), past −2 it's unusually tight, and traders bet on a snap back toward zero. The half-life estimates how many days that snap-back typically takes (from an AR(1) fit) - a pair that reverts in days behaves very differently from one that takes months. High return correlation and a short, finite half-life are what make a pair "tradeable"; a drifting spread that never reverts is a trap.