CO-S-01-05

Sentiment–Price Divergence, Z-Score Method, SPD-Z

This indicator measures the degree of misalignment between market sentiment and price action. Sentiment Momentum and Log Return are each standardized into Z-Scores, and their difference is computed to identify short-term mean-reversion opportunities.

1. Computation Logic & Formulas

Sentiment Standardization (Sent_ZScore)：

Log Return Calculation：

Price Standardization (Price_ZScore)：

Final Output (SPD-Z)：

2. Indicator Interpretation

SPD-Z captures the standard deviation between sentiment momentum and price movement.

SPD-Z Interval	Emotion - Price State	Market meaning
SPD_Z > 0（positive）	Sentiment is stronger than what prices justify.	Prices are relatively undervalued, the market is overly cautious, and there is a catch-up appreciation motive.
SPD_Z ≈ 0	Sentiment and price are aligned.	Emotions and prices are in sync, with no significant anomalies, indicating a neutral risk.
SPD_Z < 0（negative）	Sentiment lags price strength.	Prices are relatively overvalued, the market may be overly optimistic or overestimating the upward trend.

3. Application Recommendations

Calculate SPD-Z for each of the two assets separately

High SPD-Z → Relatively Undervalued

Low SPD-Z → Relatively Overvalued

Official Example

• Parameter Suggestions

Project	Meaning	Suggested Value
Output variable	SPD_Z	Sent_Z − Ret_Z
Scrolling Window (W)	Z Score Statistics Window	30

• Example Description