BTC–ETH Relative-Strength Pair Trading with Dynamic Beta Hedging

Summary

This crypto pair strategy trades BTC against ETH when BTC has a sufficiently strong intraday move and outperforms or underperforms ETH. It takes the stronger leg in the direction of BTC’s move and the weaker leg in the opposite direction, aiming to capture relative performance rather than broad market direction. Hedge size is determined by a rolling estimate that combines the historical BTC-to-ETH price ratio with the beta of ETH returns to BTC returns; the resulting beta is bounded to reduce extreme hedge ratios.

The stated exits close the combined position at a profit or loss threshold measured against opening cost. The document also describes order timeouts, retries for the second leg, position checks, and cleanup after partial failures to limit unhedged exposure. Published backtest settings identify OKX perpetual contracts and a one-minute interval, but no performance results are included. The hedge can fail if BTC and ETH decouple, and the asymmetric profit and loss thresholds depend on an adequate win rate. The text cautions that short lookbacks can make beta unstable and that the approach is poorly suited to tightly synchronized, range-bound markets.

Key ideas

• The strategy enters paired BTC and ETH positions when BTC’s intraday move exceeds a threshold and its return differs from ETH’s.
• It estimates hedge size from a rolling return beta and average price ratio, then bounds the resulting value.
• Combined position profit and loss thresholds determine exits, with calculations based on coin amounts.
• Order monitoring and position reconciliation are designed to reduce leftover exposure if one leg fails.
• BTC–ETH divergence can undermine the hedge, and no backtest performance results are reported.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.