# Tagged Questions

Cointegration is often used in statistical abitrage as a way to identify how to combine some tradable instrument to obtain a *mean reverting* one.

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### Two prices pass the cointegration test but there is a trend. How to check stationarity?

Below is a spread built with two ETFs that pass the cointegration test i.e. Adjusted Dickey Fuller, adfTest(type="nc") in R's fUnitRoots with a p-value < 0.01. The red line is the trendline. What ...
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### Choosing the time-frame to test for cointegration

Is there a technique to choose the time-frame for a cointegration test (eg Augmented Dickey-Fueller's)?
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### A gentle introduction to cointegration [duplicate]

Possible Duplicate: What is the intuition behind cointegration? Although having a postgrad degree in mathematics, I haven't used any maths 'in anger' for quite a few years now, so I am quite ...
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### Is there a measure for the 'degree' of cointegration

Is there a standard (or maybe even intuitive?) way of ranking pairs of cointegrated time series so that one could make statements like the following: ...
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### What is the correct procedure to choose the lag when preforming Johansen cointegration test?

When preforming Johansen cointegration test for 2 time series (the simple case) you need to decide the lag you want to use. Doing the test for different lag levels returns different results: for some ...
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### How do different methods and techniques used in pairs trading compare?

I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score. I am wondering if anyone has ...
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### How to normalize Futures data(different leverage) for cointegration test?

For example I want to construct 2 time series, one for ES and the other for NQ and test for cointegration. ES one point equal to 50$. NQ one point equal to 20$. If I have the following data: ES[0]=...
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### Should cointegration be tested using close or adjusted close prices?

When doing cointegration tests should I use the adjusted close price or just close price for the time series? The dividend of each stock is on different dates and can cause jumps in the data.
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### Why does the following data fail my cointegration test?

I have some closing price data for two Australian banks which track each other very closely. http://dl.dropbox.com/u/12337149/stat/CBA.csv http://dl.dropbox.com/u/12337149/stat/WBC.csv Code from ...
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### How to interpret the eigenmatrix from a Johansen cointegration test?

I ran a Johansen cointegration test on 3 instruments, A B and C. The results that I got are: ...
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### Why does this Co-integrated basket look too good to be true?

You need quantmod & tseries in R to run this: ...
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### Variable Selection in factor models

Let's say you have a dependent variable and many independent variables. What are the preferred metrics for sorting and selecting variables based on explanatory power? Let's say you are not concerned ...
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### How are correlation and cointegration related?

In what ways (and under what circumstances) are correlation and cointegration related, if at all? One difference is that one usually thinks of correlation in terms of returns and cointegration in ...
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### Are two identical time series cointegrated?

I did cointegration test on two identical time series, and the result shows that they are not cointegrated, but intuitively, I think they are. Can anyone share some thoughts on this? Thanks!