Cointegration Pairs Trading
Cointegration Pairs Trading — Mean-reversion on stationary spreads between related instruments.
Definition
Cointegration Pairs Trading refers to mean-reversion on stationary spreads between related instruments. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
It shows up in factor research, attribution, and capacity debates — whether a return slice is skill, style, or fee drag. When mean-reversion on stationary spreads between related instruments shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what cointegration pairs trading is saying. If mean-reversion on stationary spreads between related instruments moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Check definition stability across universes, costs, and regimes before treating a backtest as portable. Prefer a short written null hypothesis for Cointegration Pairs Trading: what would falsify the current reading in the next window?
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