Date of Graduation


Document Type


Degree Name

Bachelor of Science in Business Administration




Rennie, Craig


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.


Data testing, common average price, cointegration, spot prices, precious metal