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Cointegration
QuantA statistical property of two or more time-series that move together in the long run even though each one individually wanders. The basis for pairs and stat-arb strategies.
Full definition
Two price series are cointegrated if a linear combination of them is stationary (mean-reverting) even though each series is itself non-stationary. The Engle to Granger test and the Johansen test are the standard estimators. Cointegration is the statistical foundation of pairs trading, statistical arbitrage, and spread trading: it lets you bet on the spread returning to its mean rather than on either leg's absolute direction. On this site, cointegration is the statistical primitive behind at least one of the 9 quant projects listed on /projects.
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