Cointegration Spread Z-Score

Problem

Given paired series y and x and a hedge ratio beta, form the spread y - beta * x and return the z-score of its latest value: (last - mean) / population_std.

Return 0.0 when the spread is constant or contains fewer than two points.

Hint

Standardizing the spread tells you how stretched the mean-reversion trade is.

Test cases

case 1

in: [[10,12,9],[8,9,7],0.5]

expected: -0.9805806756909198

case 2

in: [[1,2,3],[0,0,0],1]

expected: 1.224744871391589

case 3

in: [[5,6],[2,2],1]

expected: 1

case 4

in: [[2,4,6],[1,1,1],2]

expected: 1.224744871391589

case 5

in: [[1,2],[0,0],1]

expected: 1

Starter codePython

def cointegration_spread_zscore(y, x, beta):
    # Your code here
    pass

5 test cases · run your code against them in the editor