Weighted Price Ratio

While a simple price ratio works for one long vs. one short, traders often use baskets of assets: multiple longs and multiple shorts with different weightings. The Weighted Ratio generalizes the idea of the price ratio into a combined performance measure for the entire strategy.

$$\text{Weighted Ratio} = \prod_{i=1}^{n} \text{Price}_i^{w_i}$$

How It Works

Each asset price is raised to the power of its allocation weight:

• Long positions have positive weights

• Short positions have negative weights

So, for the example portfolio:

• 50% Long $HYPE

• 25% Short $ASTER

• 25% Short $XPL (Plasma)

The weighted ratio becomes:

$$\text{Weighted Ratio} = \text{HYPEUSD}^{0.5} \cdot \text{ASTERUSD}^{-0.25} \cdot \text{XPLUSD}^{-0.25}$$

This is effectively the geometric return of the portfolio — a mathematically clean way to encode long/short performance.

What It Tells You

The absolute value of the ratio at any moment isn’t very important. What is important is how it changes over time:

• If the weighted ratio trends upward, your basket is performing well:

  • longs are winning

  • shorts are losing

  • or both

• If it trends downward, the basket is underperforming.

This makes the weighted ratio a direct measure of strategy PnL momentum.

Reading the Chart

The absolute number doesn't matter much. What matters is direction:

• Rising — longs are outperforming shorts. The trade is working.

• Falling — shorts are outperforming longs. The trade is losing.

Using the example above: if the ratio is trending up, HYPE is outperforming the ASTER+XPL basket. Flipping the structure (long ASTER+XPL / short HYPE) would show a downtrend — same information, opposite perspective.

You don't need to track each asset individually. The ratio chart shows the combined P&L path of the entire strategy in one line.

Where the Weights Come From

For open positions, the weights are derived from the weights set when the position was opened. Otherwise, the weights come from what the user specifies.

Code Example

type Token = { symbol: string; weight: number };
type TokenPriceMap = Map<string, { markPrice: number }>;

function computeWeightedRatio(
  longTokens: Token[],
  shortTokens: Token[],
  prices: TokenPriceMap,
): number {
  let ratio = 1;
  for (const t of longTokens) {
    const price = prices.get(t.symbol)?.markPrice ?? 0;
    ratio *= Math.pow(price, t.weight);
  }
  for (const t of shortTokens) {
    const price = prices.get(t.symbol)?.markPrice ?? 0;
    ratio *= Math.pow(price, -t.weight);
  }
  return ratio;
}