There's another 10% of chance that \(r\) is 1 or based on (A6), they are cointegrated. It seems that Johansen test is more strict than the CDAF test regarding to accepting pairs. The first eigenvector can be normalized to \(-0.45169/0.534749=-0.84467\), which is pretty close to \(0.83285314\) from CADF section. Pairs Trading I would like to apply some typical stat arb approaches to FOREX to see if there is any excess return. Think of Cointegration as a measure of mean-reversion. The more two time-series is cointegrated, the greater the tendency for the two series to revert back to some mean, either 0 or some other average/trend/value etc. FXGears Cointegration - / Pairs-Trading Disclaimer - Forex-, Futures-, Aktien - und Optionshandel ist nicht für jedermann geeignet. Es best... Monday, 21 August 2017. Cointegrated Forex Pairs That Trend In forex pairs trading, my focus is on capitalizing on the quantitative and predictable relationship between cointegrated pairs of currencies. For example, let’s assume that I’m watching those two cointegrated hypothetical currency pairs, AB and XY, and the cointegrated relationship between them is AB – XY = Z, where Z equals a stationary series with a mean of zero, that is I(0). In forex pairs trading, my focus is on capitalizing on the quantitative and predictable relationship between cointegrated pairs of currencies. For example, let’s assume that I’m watching those two cointegrated hypothetical currency pairs, AB and XY, and the cointegrated relationship between them is AB – XY = Z, where Z equals a stationary series with a mean of zero, that is I(0). Forex pairs trading strategy exploits cointegration tecniques and it is a convergence trading strategy based on statistical arbitrage using a mean-reversion logic, which is the following: if two pairs are cointegrated, the spread between them will converge sooner or later over time based on an empirical evidence. This does not necessary mean that divergence is […]
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