Strategies

ETH/BTC Ratio Trend, Market-Neutral Long-Short Pair (Long ETHUSDT.BINANCE / Short BTCUSDT.BINANCE USD-M When the ETH-over-BTC Ratio is Trending Up, Reverse When Trending Down, Daily Bars, Zero-Cross with Deadband, 2-Parameter)

Outcome: Abandoned

EthBtcRatioTrendMarketNeutralLS

Outcome Summary

The strategy sought to capture ETH/BTC rotation through daily ratio trends and opposing perpetual positions. After two iterations, review confirmed matching entry and exit timestamps across 82 completed paired episodes. Despite positive full-history headline metrics, development-period review found negative portfolio expectancy and trade returns below the fee-aware floor. It was abandoned before optimization, rejecting the tested implementation without drawing conclusions about relative-value trend trading generally.

Strategy report

Hypothesis

A DOLLAR-NEUTRAL, TWO-INSTRUMENT relative-value TREND strategy that trades the ETH/BTC price RATIO as its own instrument on daily bars, using BINANCE USD-M perpetuals so both legs can be shorted. This is deliberately NOT another single-name absolute-momentum clone (the one surviving family, now saturated across BTC/ADA/SOL/AVAX/NEAR/etc.) and NOT a cointegration/mean-reversion pair (LtcBchCointegratedSpread died): it is the crypto complex's single most persistent RELATIVE trend — capital rotating between the two largest assets ('alt-season' vs 'BTC-dominance' regimes). The ratio R = P(ETH)/P(BTC) trends for weeks at a time; we ride the trend in the SPREAD, not the direction of crypto. Because the book is beta-neutral to the whole complex, it should make money in exactly the vol-stressed / crash windows where directional trend books lose (a genuine regime-diversifier for the portfolio, whose entire long-short survivor set is single-name directional). Only 2 parameters (lookback, deadband) to resist the overfit that killed 380 prior hypotheses. Primary = ETHUSDT.BINANCE, hedge = BTCUSDT.BINANCE, dollar-matched legs (equal USD notional each side => ~zero net crypto beta by construction; residual beta from ETH's ~1.1 beta to BTC is small and further trimmed by the neutral sizing).

Measured negative development-period expectancy across 82 completed paired episodes: -11.291% portfolio return, profit factor 0.979 and mean trade return 0.0902% versus the 0.15% fee-aware review floor. No demonstrated implementation defect or evidence-supported repair justifies optimization. This rejects the tested daily ratio-trend operationalization, not relative-value trend trading generally or untested parameter regions. No conclusion is drawn about the withheld period after 2025-06-15.

Implementation

Dollar-neutral ETH/BTC ratio-trend pair on Binance USD-M daily bars. Signal = 100*ln(R_t/R_{t-lookback}) where R = P(ETHUSDT)/P(BTCUSDT), computed every bar. A zero-cross-with-deadband state machine goes long-spread (long ETH / short BTC) when the ratio trend exceeds +deadband, short-spread when it falls below -deadband, and flat on the zero cross. Both legs are sized to identical USD notional (equity * leg_fraction * leverage) so the book carries ~zero net crypto beta and expresses only the ETH-over-BTC rotation. Two signal parameters (lookback, deadband).

Iteration 2 targets the incoherent-metrics failure (Sharpe +0.31 vs total_return -11.24%): a positive mean daily mark-to-market return with a negative compounded equity curve is volatility drag, and the drag source here was a structural leg-desynchronisation bug. The old should_enter required the BTC hedge to already appear in cache.positions_open before allowing the ETH entry, but the hedge market order is submitted on the same bar and only fills on the NEXT bar - so every entry ran a fully NAKED directional BTC leg for a whole daily bar before the ETH leg went on. That injected raw crypto beta and its variance into a book that is supposed to be beta-neutral, inflating mtm volatility (drag) while the realized equity curve bled. Fix: track the submitted-but-unfilled hedge as a pending direction (_hedge_pending, expiring after 2 bars if it never fills) and accept it in should_enter, so both legs are submitted on the same bar and fill together; plus a should_exit safety that flattens the ETH leg if the mirrored hedge ever goes missing, so the book can never carry a one-legged directional position (lesson L59). Leg_fraction was trimmed 0.35 -> 0.30 (gross 1.2x equity at leverage 2.0, which the sizing consumes via self.config.leverage) to further cut compounding drag. Signal logic, imports, class structure and the deadband state machine that passed Layers 1-3 are unchanged.

Verification Results

Optionally require both same-ts closes to be present before computing/acting on the signal for that bar, to guarantee ETH and BTC are always sampled at the identical instant.

On a shared close-timestamp, if the ETH primary bar is dispatched before the BTC extra bar, calculate_signal falls back to _hedge_last (the prior day's BTC close), so the ratio mixes today's ETH close with yesterday's BTC close for that bar. This is conservative (never future-peeking) but introduces a one-day staleness in the ratio depending on intra-timestamp dispatch order. The lookback-trend signal is robust to this, so it is not a correctness failure.

Verify the base template calls the subclass min_bars_required for warmup gating; rename if the override is not honored.

min_bars_required overrides a framework method (static-analysis base_shadow warning). Appears intentional (returns lookback+2 to gate warmup) and behaves correctly, but confirm the base template honors the override rather than its own implementation.

Sandbox is a smoke test but two things are worth carrying to the analyst: (1) regime attribution shows the 'normal' vol tercile at -30.4% return / -0.02 Sharpe while all PnL comes from calm (+28.5%) and stressed (+38.9%) terciles — the market-neutral diversifier thesis holds in stress (good) but the book bleeds in the middle regime, so full-history edge is regime-lumpy; (2) max_drawdown 49.6% with a 1381-day drawdown-duration and Sharpe CI [-0.40, 1.06] straddling zero — the point estimate (Sharpe 0.33, PF 1.04) is marginal and not yet skill-distinguishable. Also note leg sizing is equal-USD-notional (dollar-neutral), which is what the hypothesis specifies, but ETH carries ~1.1 beta to BTC so a small residual long-beta remains by construction — the hypothesis acknowledges this. None of this blocks; the optimizer/full backtest decides.

Backtest Review

Sharpe: 0.33
Total return: 24.65%
Max drawdown: 49.29%
Trades: 200
Win rate: 49.5%
Profit factor: 1.04

All 82 completed paired episodes have opposing ETH/BTC legs with matching entry and exit timestamps, consistent with the repaired pair lifecycle.

Some stress windows are profitable; single-leg buy-and-hold is not a meaningful benchmark.

The 164 closed legs sum to -11,291.37 USDT, closely reconciling with the -11.291% portfolio return. Profit factor is 0.979.

Mean notional trade return is 0.0902%, below the Binance USD-M 0.15% review floor. The positive unweighted average does not establish positive portfolio expectancy.

Both spread directions lose: long ETH/short BTC -301.76 USDT; short ETH/long BTC -10,989.61 USDT. QA's marginal-economics concern is borne out.

Stress diversification is mixed, including losses during the China-ban and FTX windows. Drawdown reaches 49.287% with a 952-day duration.

Equal entry dollar notionals do not establish beta neutrality or maintain dollar neutrality as prices diverge.

Analysis

Backtest gate: - metrics unreliable: Incoherent: Sharpe 0.31 disagrees in sign with total_return -11.24% — the Sharpe is computed from the mtm_equity_curve series while the return comes from the equity curve. Judge on the equity curve.

Outcome Summary

Assess paired portfolio expectancy and measured neutrality directly, since equal entry notionals do not establish beta neutrality or profitable portfolio economics.

Backtest review abandoned it after two iterations because development-period expectancy was negative and mean trade return missed the 0.15% fee-aware floor, without an evidence-supported repair. Optimization and later reviews were not reached; no conclusion was drawn about the withheld period after 2025-06-15.

Capture daily ETH/BTC ratio trends through opposing Binance perpetual legs with equal entry dollar notionals and zero-cross exits with an entry deadband.

The full-history report showed 24.65% return, Sharpe 0.333 and 200 closed positions, with 49.29% maximum drawdown. The decisive development-period review found -11.291% return across 82 paired episodes, profit factor 0.979 and mean notional trade return 0.0902%.

Backtest and paper results are hypothetical. Trading involves risk of loss.