Date of Graduation
5-2021
Document Type
Thesis
Degree Name
Bachelor of Science in Business Administration
Degree Level
Undergraduate
Department
Finance
Advisor/Mentor
Rennie, Craig
Abstract
When talking about financial instruments correlation is often thrown around as a measure of the relation between two securities. An often more useful or tradeable measure is cointegration. Cointegration is the measure of two securities tendency to revert to an average price over time. In other words, cointegration ignores directionality and only cares about the distance between two securities. For a mean reversion strategy such as statistical arbitrage cointegration proves to be a far more reliable statistical measure of mean reversion, and while it is more reliable than correlation it still has its own problems. One thing to consider is that when looking over thousands of data points it is extremely easy to find at least 2 that are cointegrated at some point. Therefore, data cleaning and selection is extremely important.
Keywords
Data testing, common average price, cointegration, spot prices, precious metal
Citation
Van Horn, J. (2021). Cointegration and Statistical Arbitrage of Precious Metals. Finance Undergraduate Honors Theses Retrieved from https://scholarworks.uark.edu/finnuht/68
Included in
Applied Statistics Commons, Finance and Financial Management Commons, Statistical Methodology Commons