Three-Leg Cointegration Trading Between EWY and Korean Chipmakers

Summary

This relative-value strategy models the log price of the EWY Korea equity ETF as a linear combination of Samsung Electronics and SK Hynix prices, with an intercept. It standardizes the regression residual over a rolling window and treats large positive or negative deviations as a rich or cheap EWY spread. The strategy takes the opposite side in EWY and uses the regression coefficients to size the two hedge legs, then exits when the residual score returns toward its center or a maximum holding time is reached. It also describes beta drift rebalancing, emergency exposure reduction, and a paper-trading mode.

The document provides default thresholds, a BTC-margined-perpetual-style implementation context, and several operational safeguards, but no backtest performance evidence. It explicitly notes that this is not risk-free arbitrage: cointegration can break during company-specific events, funding-rate differences are not modeled, and contract history and liquidity have not been tested through a full market cycle. Residual convergence, hedge stability, execution costs, and actual tradability therefore remain unproven.

Key ideas

• The spread is the residual from regressing EWY log prices on Samsung and SK Hynix log prices.
• A rolling residual z-score sets directional entries, with convergence or a time limit triggering exits.
• Regression coefficients determine hedge-leg weights intended to neutralize the modeled stock exposures.
• The implementation describes beta drift rebalancing, emergency risk reduction, and default paper trading.
• Cointegration breaks, funding differences, limited contract history, and slippage remain material risks.

Tags

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