Two outcome tokens that move together (e.g. two candidates in one primary, or BTC-above-X vs ETH-above-Y) usually trade at a stable price relationship. A Kalman filter is a running estimator that keeps re-fitting that relationship as new ticks arrive, so its ratio adapts faster than a fixed formula. You trade the spread between the two tokens whenever it drifts too far from the filter's current estimate, betting it snaps back. The edge: the on-chain order book is slow to reflect the true co-movement that the recursive estimate captures first.
Markets on Polymarket where kalman-filter pairs on cointegrated outcome tokens is the natural play:
