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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12
votes
1answer
1k views

Why does the following data fail my cointegration test?

I have some closing price data for two Australian banks which track each other very closely. http://dl.dropbox.com/u/12337149/stat/CBA.csv http://dl.dropbox.com/u/12337149/stat/WBC.csv Code from ...
25
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1answer
13k views

How to interpret the eigenmatrix from a Johansen cointegration test?

I ran a Johansen cointegration test on 3 instruments, A B and C. The results that I got are: ...
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2answers
2k views

Why does this Co-integrated basket look too good to be true?

You need quantmod & tseries in R to run this: ...
18
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4answers
869 views

Variable Selection in factor models

Let's say you have a dependent variable and many independent variables. What are the preferred metrics for sorting and selecting variables based on explanatory power? Let's say you are not concerned ...
55
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6answers
26k views

How are correlation and cointegration related?

In what ways (and under what circumstances) are correlation and cointegration related, if at all? One difference is that one usually thinks of correlation in terms of returns and cointegration in ...
16
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5answers
3k views

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!
9
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2answers
854 views

How do I incorporate time-variability in a pair trading framework?

Recently I have been looking at pair trading strategies from a cointegration perspective, as described in chapter 5 of Carol Alexander's Market Risk Analysis volume 2. As most quantitative finance ...
32
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6answers
19k views

What is the intuition behind cointegration?

What is the intuition behind cointegration? What does the Dickey-Fuller test do to test for it? Ideally, a non-technical explanation would be appreciated. Say you need to explain it to an investor ...

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