Understanding Euclidean Geometry Concepts

yourquant_rick on Instagram: "The idea is to use Euclidean distance as a way to measure how far a basket of assets has moved away from its normal, mean-reverting state. Instead of looking at a single spread or pair, each asset in the basket is treated as one dimension of a larger system. At any point in time, the basket has a “position” defined by how much each asset has deviated from its own historical average. To make assets comparable, each one is first normalized by its recent volatility. Th