Pairs Trade Calculator - Frenzy Capital

Pairs trading involves significant risk. This tool is for educational purposes only and does not constitute a trading recommendation. See Terms §17.

Pairs Trade Calculator

How to use: Enter two symbols and a lookback window (days). We’ll calculate rolling correlation, z-score, and residual spread so you can spot mean-reversion opportunities. Focus on liquid ETFs/equities to ensure you can hedge efficiently.

Pairs Trading Handbook

Why pairs?

Pairs trading bets on relative performance. When historically-linked assets diverge, you short the stretched outperformer and buy the laggard, expecting mean reversion.

Scanning process

Choose symbols with a proven economic link (sector/ETF vs constituent, dual-listed shares, supplier/customer).
Pick a lookback window (15–90 days). Shorter windows pick up regime changes faster; longer windows smooth noise.
Review correlation (>0.8 preferred) and z-score (>|2| indicates stretched spread).

Reading the chart

Spread chart: Highlights how far the price ratio has strayed from its moving average.
Divergence & Z-score panel: The lower plot overlays the spread, its SMA, and the standardized z-score (secondary axis). Triangles flag potential trades: red for short symbol 1 / long symbol 2 when z > +2; green for long symbol 1 / short symbol 2 when z < -2.
Correlation plot: Shows whether the pair is still moving together. Sustained drops below 0.5 often mean the statistical relationship is breaking.

Execution tips

Size both legs to delta-neutral the pair (use dollar weighting or beta adjustments).
Enter gradually—half size at initial signal, add if z-score continues to stretch.
Define exits: close near zero z-score, or stop out if divergence widens beyond your max loss threshold.
Watch catalysts (earnings, macro events) that can break historical relationships.

Stay disciplined