Pair Trading Lab > Questions & Answers

Co-integration

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Richard Feit:
I am new here and would like to know which field I should look at to determine the level of cointegration? What number and where it is.
Thanks

admin:
Hi, start with reading the manual please:

https://wiki.pairtradinglab.com/wiki/Pair_Database

Richard Feit:
OK, I read the part about cointegration and the results one should look at. I am still very confused.
Can you give me an example of a highly cointegrated pair and one that is only marginally so that I can reverse engineer the results to find out what to look for?  I am most interested in scanning for specific criteria for another type of strategy on your paid service.

Richard

admin:
Cointegration is a binary feature. There is nothing like "marginal" or "high" amount of cointegration. PTL uses the standard ADF test with two confidence levels - 95% and 99% - to help you discover cointegrated pairs. It is up to you to decide which statistical confidence level is enough for you to decide if the pair is cointegrated.

https://en.wikipedia.org/wiki/Cointegration
https://en.wikipedia.org/wiki/Augmented_Dickey%E2%80%93Fuller_test

Richard Feit:
OK, I give up on finding how to judge cointegration.
What I am looking for is how to scan for particular criteria.
For example, can I scan for a 95% confidence level with less than 25% correlation, as an example?

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