Charting a Normalized Pair Spread with Moving Bands

Summary

This charting tool compares two selected swap markets against a chosen base market. For each bar, it divides each instrument’s close by the base close, then divides those two normalized values to form a relative spread series. It plots that series alongside a 20-period simple moving average and upper and lower bands set two standard deviations from the average. The displayed timeframe is selectable from minute to weekly intervals.

The result is a visual aid for examining relative movement that could inform pair-spread research; the document does not define entry, exit, or position-sizing rules, so it is not a complete arbitrage strategy. It gives no backtest evidence or profitability claims. The calculation pairs records by array index and uses the first market’s timestamps, which assumes that all three data series are aligned. Early unavailable averages and deviations are filled with their first computed values, a display choice that can affect interpretation near the start of the chart.

Key ideas

• The spread is calculated by normalizing each of two instruments by a selected base market, then taking their ratio.
• The chart overlays a 20-period moving average and bands two standard deviations above and below it.
• The selectable timeframe spans short intraday bars through weekly bars.
• The document describes a visualization rather than explicit trading rules or tested arbitrage returns.
• Comparisons assume aligned records, and early band values are filled from the first available calculations.

Tags

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