Co-integration in PTF

Co-integration in PTF

Yes, using Cointegration is an option in the software and we use it as a critical component of our trading system, though that is a choice. By default Cointegration is toggled off when you install PTF PRO as it is computationally costly. To enable it you will need to go to System Preferences by clicking the top left “pear” button, and then enable co-integration. Also note that it's calculated on end-of-day data.


We use Cointegration Augmented Dickey Fuller (CADF) test for cointegration.  We display the result as Reverse Cointegration i.e. a p-value of 0.05 from the CADF test is displayed in PTF PRO as 0.95. Most users find it easier to analyse in this way. The possible range of the p-value in the Cointegration Augmented Dickey-Fuller (ADF) Test, like in most statistical hypothesis tests, is between 0 and 1. This range is inclusive, meaning the p-value can be exactly 0 or exactly 1, though in practice, a p-value of exactly 0 or 1 is highly unlikely due to the continuous nature of p-value computations.

The p-value represents the probability of observing the test results under the null hypothesis. In the context of the ADF test, which is used to test for a unit root in a time series, a low p-value (typically below a threshold such as 0.10, 0.05, or 0.01) indicates that the null hypothesis (presence of a unit root, suggesting non-stationarity) can be rejected in favor of the alternative hypothesis (no unit root, suggesting stationarity). Conversely, a high p-value suggests that there is not enough evidence to reject the null hypothesis, indicating that the series may be non-stationary.

For more info on why you want to use Cointegration in pairs trading, see our video lecture here: https://www.youtube.com/watch?v=cXy-YhfAYnQ



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