Wind vane angular sensor

I need to build a wind vane to measure wind angle on a autonomous sailing boat. To do that i need a way to measure the angle of a rotating shaft with very little friction. I just got a continuously rotating potentiometer but the friction in it is far to high. An old mouse wheel optical sensor is small and rotates with almost no friction but it will only give me a relative angle.

I need a resolution around two degrees.

The housing can't be much more than 30 mm in diameter. I would prefer a thin but tall housing.

Any ideas are welcome.


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