When doing linear regression to figure out the hedge ratio for the cointegration relationship what does it mean if the residuals are stationary but end up looking like the price time series of y? How should I interpret this and should I still trade this relationship?

  • 1
    $\begingroup$ Not sure about underlaying concept ("the hedge ratio for the cointegration relationship"), but it seems you are using the wrong model. Generally speaking, it is either the relationship is lot linear or your independent variables are not capturing all variation in dependent variable (add more independent variables). $\endgroup$
    – quantinho
    Apr 25, 2023 at 1:50
  • 2
    $\begingroup$ Could you include a picture of the original time series and the residuals? $\endgroup$ Apr 25, 2023 at 6:29


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.