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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How to determine ratios for mean-reverting basket
Suppose I have a basket of 3 securities A, B, and C. I believe that the basket is cointegrated and I want to create a mean-reverting trade. I fit the model:
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Cointegration tests
I'm trying to figure out how to perform cointegration tests in R between 2 time series. I'm using po.test from the package ...
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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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Alternative ways to understand time-varying comovement between two time-series?
I have been looking into ways to better understand how the dependencies/correlations/etc between two time series can vary over time.
I first thought about using a Kalman/particle filter over a ...
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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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Philips-Ouliaris test for cointegration
I'm trying to implement cointegration tests using the R urca package. I've figured out the Johansen test (ca.jo), but I'm having trouble with the Philips-Ouliaris test (ca.po). I have two questions:
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Modelling long run relationship between dividend and earnings
I am working on a paper where I have to model the long run relationship between earnings and dividends. I have downloaded the raw data from shillers website. I have converted the series to ...
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Stepwise Cointegration
This is more of a general question at this point, but if my thought process makes sense I will follow up with an R implementation. I have read a number of papers on cointegration analysis for pairs ...
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R Outputs from Johansen test. Linear combination still not stationary?
I am trying to see if house price is cointegrated with interest rate, per capita income and rental vacancy rate and got the following output from ca.jo in R:
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Lagging Beta Strategy
Came across a method involving pairs in the book Hedge Fund Market Wizard:
Given a Stock(or Collective of instruments)that follows closely to say Dow index with a beta<1(very short term) but ...
