# Questions tagged [cointegration]

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 rare is cointegration in the case of stocks?

I did some cointegration tests on a 50 stocks sample, whith which I created pairs. I used the Engle-Granger approach and the Johansen approach, both of them gave me a high percentage of cointegrated ...
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### Cointegration between daily time series and intraday time series

I am working with time series data of daily prices, and intraday prices. For simplicity sake I will refer to the daily time series as 'A' and 'B', and the intraday time series of the same instruments ...
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### Is my coding for my kalman filter off when testing this specific set of pairs?

My kalman filter seems to be off for this specific set of pairs I'm looking at. As you can see, in the kalman filtered linear regression, there seems to be an outlying blue line nowhere near the data ...
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### Cointegration on prices or difference of prices

Is it better to run my cointegration tests on prices or difference of prices? Difference of prices are more likely to be stationary so the results of my regression (which gives me the beta for my ...
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### Does Chan use the wrong state transition model in his Kalman filter code?

In his book, Algorithmic Trading: Winning Strategies and Their Rationale, Ernie Chan shows how to use a Kalman filter to improve the returns of a cointegrated portfolio. Recall that the state equation ...
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### Minimizing variance when searching for Cointegration

This paper by Meucci explains that in order to find a combination leading to cointegration of several series $X$, you have to find the vector $w$ which minimise the quantity $\textrm{Var}(w'X)$. I do ...
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### If two price series are cointegrated but not correlated, how do I find the hedge ratio?

Mathematically, what is going on here?
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### When constructing a cointegrating series, does choosing the linear regression with the lowest ADF test statistic yield the optimal hedging ratio?

Multiple sources say that you should find the optimal hedging ratio between two stocks in a pairs trade by conducting 2 linear regressions (with each stock as the independent variable), and using ...
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### Are there any papers about cointegration consisting of time series of more than two assets?

Are there any papers about cointegration consisting of time series of more than two assets ? I wonder if there could be any trading strategy for three assets case.
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### Cointegration vs combination of returns

Hi Quantitative Finance, I understand that there are a wealth of pairs trading models out there. Recently, it got me thinking as to why we go through the trouble to find cointegrated pairs while we ...
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I have intuition that cointegration between elements of pair of equities somehow contradicts pairs trading strategies. Because the better is linear fit of the model the less opportunities we have for ...
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