Contagion Velocity Rate (CVR)

Name: SimpleFunctions
Author: SimpleFunctions

Contagion Velocity Rate measures how quickly a thesis priced into one prediction-market contract propagates to its semantic neighbors, computed as the lag in hours between a 5¢ move on a parent contract and an equivalent move on a related contract from the same event family. Low CVR means a thesis is spreading fast; null CVR (the common case) means the contract has no detected siblings and the thesis is uncontaminated by neighboring price action.

CLI:sf scan --by-cvr asc --warm

What "Contagion" Means in This Context

A piece of news about the May Fed meeting affects the May Fed-decision contract first. Within minutes, related contracts — the June Fed-decision, the year-end "any cut" contract, the SOFR futures market — start to reprice in the same direction. The speed at which that secondary repricing happens is contagion velocity. Fast contagion means the market is treating the news as a structural reassessment that affects the whole rate stack. Slow contagion means traders are still arguing about whether it matters.

The formula is a measured lag, not a closed form:

CVR = median lag (hours) between 5¢ Δp on parent contract and 5¢ Δp on related contract,
      across recent contagion events

Where "related contract" comes from the cycle-clustering grouper (see cycle-clustering), and "recent" defaults to the last 30 days of history in market_indicator_history. The median is the statistic — outliers from one-off news shocks get filtered.

The "Sparse Coverage" Caveat

CVR is in Tier B of the indicator stack: it requires both the parent and a sibling to have history records, and most contract families do not have enough siblings to compute it at all. For roughly 80% of markets, CVR returns null — because either the contract has no detected sibling family, or the family is too small to produce a meaningful median lag. That null is informative in its own right: a contract with null CVR is uncontaminated, in the sense that no one has been pricing related contracts in concert with it.

For the strategies that look for first-mover edge, uncontaminated is the entry condition. A thesis that is not yet priced into the sibling markets is one where you can take a position in the parent before the contagion catches up — and harvest the lag yourself, by taking matching positions in the unmoved siblings as the news propagates. That is the trade. CVR identifies when the lag exists.

When Low CVR Tells You Something Different

A low CVR (siblings repricing within an hour of the parent) tells you the family is being traded as a single unit by at least one disciplined participant. That is sometimes a tell that there is a coordinated maker on the family, and the apparent dislocation between sibling prices is being held together by their quotes. Trading against that requires more conviction than trading against an uncoordinated retail flow, because the maker has a structural view on the cross-prices that you would have to refute.

High CVR (siblings repricing 8+ hours later) is the opposite: nobody is connecting the dots between contracts, and a fast trader can pick off the lag. That is the traditional cross-market arbitrage opportunity, just expressed as a velocity instead of a static spread.

Example

Three Fed-related contract families, observed across the last 30 days:

| Parent contract family | Detected siblings | Median lag | CVR | Read |
|---|:---:|:---:|:---:|:---:|
| Fed cut at next meeting | 4 | 0.8 hours | 0.8h | Tightly coordinated, retail can't pick off |
| EU rate decision | 2 | 6.5 hours | 6.5h | Slow contagion, lag-trade opportunity |
| Random commodity event | 0 | n/a | null | No siblings, uncontaminated |

The first family (Fed cut) has CVR = 0.8h. Within an hour of any 5¢ move on the parent, the siblings reprice. There is almost no lag to harvest, and any apparent dislocation is being actively held together by a market maker pricing the family as a unit. Trading against this requires a structural view, not just a velocity view.

The second family (EU rate decision) has CVR = 6.5h. A 5¢ move on the parent typically takes 6+ hours to show up on the sibling markets. That is a window where a fast trader can take a position in the parent and immediately add matching positions in the unmoved siblings — and harvest the lag as it closes. This is the textbook cross-market lag trade.

The third family is the interesting one. CVR is null because the contract has zero detected siblings in the cycle-clustering output. That null is the entry condition for a different strategy: thesis purity. Without sibling contagion, the parent's price reflects only its own thesis — no spillover from adjacent markets, no need to disentangle. For a trader who wants to bet on a single, isolated event without confounders, a null CVR is exactly what to look for.

Related Terms

Signal

A signal is any piece of new information that could affect a thesis — a news article, a price movement, a data release, a user note, or an external webhook event. The agent evaluates signals against the causal tree.

Edge Detection

Edge detection is the systematic process of scanning prediction markets to find contracts where the market price diverges from your thesis-implied fair value by more than the cost of execution.

Cross-Venue Analysis

Cross-venue analysis compares pricing of equivalent events across different prediction market platforms (like Kalshi and Polymarket) to find arbitrage opportunities or the best execution venue.

Mean Reversion

Mean reversion is the tendency for prediction market prices to return toward their long-term average after temporary spikes or drops caused by overreaction to news events.

Cliff Risk Index (CRI)

The cliff risk index measures how fast a binary prediction-market contract is approaching resolution, defined as the absolute price velocity multiplied by the days remaining: CRI = |Δp/Δt| × τ. High CRI flags markets that are actively deciding; low CRI flags markets that are stuck.

Event Overround (EE)

Event overround is the sum of YES prices across all mutually exclusive outcomes in a single prediction-market event, minus one: EE = Σpᵢ − 1. A clean market gives EE = 0. Positive EE means the outcomes collectively overstate certainty (sell-side arbitrage). Negative EE means the outcomes collectively understate it (buy-side arbitrage).

Cycle Clustering (CYC)

Cycle Clustering is the process of grouping prediction-market contracts that belong to the same recurring event family using a fixed set of nine slug regex patterns. CYC turns the universe of 47,000 isolated contracts into ~2,500 connected event families, which is the prerequisite for computing yield curves, cross-sibling overround, and contagion velocity. Roughly 41.4% of markets get assigned to a family; the remaining 58.6% are events that do not fit any of the nine patterns and are handled separately.

Null as Signal

Null as Signal is the framework reframe that treats a missing indicator value not as a data defect but as a positive entry condition for a specific strategy. When LAS is null, when EE is null, when PIV is near zero, when CVR is null — each null state corresponds to a maker or first-mover strategy that other traders have not noticed because they are filtering the nulls out. The four named null patterns are the entry conditions for the four maker strategies in the SimpleFunctions playbook.

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