# 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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### Why is OLS based spread not reflective of actual difference?

I'm trying to define and track the spread between two time series (data available here), for the purpose of learning pair trading basics. When running a cointegration test the two series seem to be ...
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### Given a cointegrated portfolio of stocks, how to build a synthetic option position by using the options on the stocks

The setting Let stocks $A$, $B$, and $C$ are cointegrated. Moreover, we know the weights of the cointegrated portfolio (scaled so that the absolute value of the maximum weight is $0.5$): $w_A = 0.15$ ...
1answer
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### How to compute returns of a Pairs Trading Strategy with different holding periods?

I am currently working on a project where I am testing a Pairs Trading Strategy based on Cointegration. In this strategy I am considering to trade a couple of hundred stock pairs every day over a time ...
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### Are two identical time series cointegrated?

I did cointegration test on two identical time series, and the result shows that they are not cointegrated, but intuitively, I think they are. Can anyone share some thoughts on this? Thanks!
2answers
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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.
1answer
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### pair trading cointegration - calculating shares quantities traded, portfolio value and returns

I have a trading strategy based on the cointegration of X and Y where beta derived from the regression is 0.7. My initial capital to invest is 1000. My understanding that the quantities of X and Y to ...
2answers
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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 ...
1answer
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### Johansen Cointegration Test

I just performed a Johansen Co-integration test on two stocks. The results I get are: ans = r0 r1 t1 true false I am using Matlab. Can ...
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### Cointegration and pairs trading

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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### Spurious regression between two futures with the same underlying highly correlated (cor=0.9)

analyzing the correlation between soybean and soybean meal futures in ECBOT, and making a linear regression in R between them I check with an ADF Test that the residuals are not stationary, so ...
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### Cointegration results interpretation validation?

Here is how I am interpreting results of a Johansen Cointegration Test and Engel-Granger Test for A and B. The results:(Using matlab) ...
1answer
627 views

### Looking for materials regarding Pair Trading [closed]

For my master thesis, I wish to work onto Cointegration and Pair Trading. I was wondering if any of you had some scholar/blog material recommendations. Best Regards
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### Why does the presence of cointegration solve the problem of spurious correlation? [closed]

Many of us are familiar with the connection between spurious correlation and its relationship to cointegration. Granger explains in his seminal 1974 paper "Spurious Regressions in Econometrics" how ...
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### How do you decide what time frame you're going to use when testing for cointegration?

I've been fiddling around with different time frames when doing tests for cointegration between two timeseries, and I've realized that the dates that you use for your start/stop of the test will ...