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Questions tagged [mean-reversion]

A mean reverting process is a process that, over time, tends to drift toward its long-term mean.

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cointegration strategy

If it can be proved that two time series $$S_t^1=\alpha + \beta S_t^2 + \xi_t$$ representing stocks are correlated, with $\beta=-2$ and then are proved to be cointegrated, how a portfolio should be ...
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How to optimize an arbitrage portfolio when taking into account different speeds of mean reversion?

In portfolio optimization, it is insufficient to just note the size of price deviation - that only tells the amount of profit if held to maturity. One also needs to take into account reversion speed - ...
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Are there alternatives to the Box-Tiao decomposition in identifying mean reverting portfolios?

As documented in this paper, Box-Tiao decomposition (a way to decompose multiple time series into components with different speeds of mean reversion) can be used to identify mean reverting portfolios. ...
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I have constructed a mean reverting spread using two indexes. I know they have to be mean reverting, but when plotted side by side they are mean reverting for a little bit and then deviate and head ...
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Two prices pass the cointegration test but there is a trend. How to check stationarity?

Below is a spread built with two ETFs that pass the cointegration test i.e. Adjusted Dickey Fuller, adfTest(type="nc") in R's fUnitRoots with a p-value < 0.01. The red line is the trendline. What ...
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