easy · Quantitative Finance
A trader is analyzing two non-stationary price series that wander but stay tethered together over time.
Which statistical property does this describe, and what is its primary use in quantitative trading?
- Multicollinearity; used to identify redundant predictors in factor models.
- Homoskedasticity; used to ensure that volatility is constant for option pricing.
- Autocorrelation; used to predict the next price move in a single asset.
- Cointegration; used to build mean-reverting pairs trading strategies.
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