Cointegration trading question
What's the state of the art when it comes to choosing proper subsets of stocks/assets where cointegrating relationships aren't ignored as (likely to be) spurious?
For example, we wouldn't want to trade a Chinese stock of a fast food franchise with an Australian mining company because a cointegrating relationship could too easily be due to a type I error. But you might want to trade two Australian mining stocks because they share risk factors, reducing the probability that your cointegrating relationship is spurious.
What's the best way to approach this? Informed opinions welcome.