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The high serial correlation you are getting in the first case is a spurious correlation. The correct way to do it is with returns. The price series has a unit root. You need to take diff(log(prices))) in order to have a stationary time series, on which you can then estimate autocorrelations, auto regressive coefficients, etc. properly. This was shown by ...


If I understand your problem correctly you are trying to search for the optimal basket of 5 pairs (without worrying about weighting). The problem is computationally there are too many combinations to sort through. So I will propose a simple algorithm: Calculate correlation matrix, grab the pair that has the least avg correlation as a seed for your basket, ...

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