I have been reading and trying out stuff until I am totally confused and back to square one. Could someone please explain the difference between the two methods suggested below?
Suppose I have 10 stock price series that are I(1). I can use Johansen's method to test for co-integration and find appropriate weights for each stock to create a stationary basket from these 10 stocks.
Second approach, I use available VAR (vector auto regression) methods to fit a VAR model on these 10 stocks and find a model that is stable (stationary).
What is the difference between these two approaches? Are they the same because both result in a basket of stocks that is stationary?