Not the Grail, just a regular one - Bablokos!!! - page 59
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The basis of paired trading is cointegration, and we cannot use correlation. Co-integration can be estimated even visually - it's flatness. I.e. the tendency of the kotyr to return to the average for example. Right now eurusd and usdchf are cointegrated. It can be seen in the eurchf cross. But the flatness is in a very narrow range.
Co-integration is based on the property that the greater the deviation, the more likely the return. The economic sense is that some participants have reasons to trade for convergence. Trying to jump in before them. So we need to understand the reasons why the instruments are now cointegrated, rather than fitting everything into a flat.
Correlation of quotes is present, while cointegration is not. Correlation is used in pair trading.
Correlation of quotes is present, cointegration is not. Pair trading uses correlation.
sorry, but this is nonsense written in the wiki about correlation
True, it goes on to say:
"As you can see, the main principle of Technical Analysis, which is to return deviated values to their averages, is also confirmed for ratios of two assets. "
which is essentially the property of cointegration.
sorry, but that's the bullshit in the wiki about correlation
True, it goes on to say:
"As you can see, the main principle of Technical Analysis, which is to return deviated values to their averages, is also confirmed for ratios of two assets. "
which is essentially the property of cointegration.
there is no co-integration in the quotes.
Where does it come from? What does it follow from?
I have heard about the requirement of normality of the distribution of correlated variables, but the requirement of stationarity - where is it written and who requires it?
correlation of quotes is present, cointegration is not. In pair trading, correlation is used.
Pair trading uses noodles, So what?
I don't want to deny your opinion ("the correlation of two quotes is nothing more than a flood") from the point of view of strict mathematics. But from the point of view of practical use of correlation the following picture can be observed: Take for example eurusd and usdchf quotes, measure the correlation between them using the script. We obtain the result close to -1 (inverse correlation is very high). Let's look at it visually and see if it is really true - almost a mirror image. We can also compare it with two other quotes where the correlation is very low. We visually look at these pairs and indeed see that there is no in-phase movement. These experiments confirm that correlation can be used for practical purposes to estimate the degree of in-phase movement of two symbols when choosing suitable currencies for paired trading.
Visually is not a criterion, because you see the past and pose the future. What about there?
Even if you build on cointegration, about which there is some theoretical basis, there are still difficulties.
There is no co-integration in the quotes.
there is no cointegration in the quotes.
In the books.
Learn the math - the series studied for correlation must be normally distributed. To discuss the difference between normality and stationarity, read what you wrote in the other thread. You were even given an example of non-stationary series with a normal distribution and vice versa.
there is no cointegration in quotes.
Take the difference between eurusd/gbpusd vs eurgbp and you will see the cointegration. That doesn't mean you can make money on it because of the overheads.
But in most cases the cointegration is temporary (seasonality for example).
No matter how you look at it, the mean reversion systems for pair trading and statistical arbitrage try to use cointegration