CO-S-01-06

Sentiment-Price Rank Correlation Divergence，SPD-R

This indicator measures the short-term directional consistency between Sentiment Momentum and Log Return. By computing their Spearman rank correlation over a recent rolling window, it quantifies the strength of short-term “sentiment–price directional divergence.”

A larger SPD-R indicates a stronger divergence, suggesting increased short-term irrationality and a higher likelihood of mean-reversion or reversal opportunities.

1. Calculation Logic and Formulas

Calculate Sentiment Momentum:

Calculate the logarithmic return of the price:

Computation: Spearman Rank Correlation

Using the most recent W = 7 observations, take:

• The sentiment momentum series

• The log-return series

Apply a rank transformation to both sequences and compute their Spearman rank correlation:

The final output is:

A larger SPD-R indicates a stronger directional divergence between sentiment and price.

2. Indicator Explanation

SPD-Z reflects the standard deviation between emotional momentum and price behavior, measuring whether the market is showing a misalignment between emotions and prices.

SPD-R Interval	Interpretation	Market Implication
> 0.5	Strong Divergence	Sentiment moves opposite to price → High reversal probability
0.2 ~ 0.5	Moderate Divergence	Sentiment and price are not aligned → Trend weakening, requires observation
≈ 0	Synchronized / Neutral	Sentiment supports price → Neutral market state
< 0	Directional Confluence	Trend is healthy → Favors trend-following trades

Official Example

• Parameter Suggestions

  Item	Definition	Recommended Value
  Output Variable	SPD_R	Rank-correlation divergence between sentiment and price
  Divergence Window (W)	Number of recent samples	7

• Example Description