What is cointegration?Cointegration

Two prices each wander freely, but some combination of them (like the spread) keeps returning to its mean; pairs trading really needs cointegration, not just correlation.

Learn “cointegration” in an animated lesson

Arbitrage Strategies
Pairs Trading: Statistical Arbitrage
Two stocks that have long moved together drift too far apart: buy the cheap one, sell the expensive one, and wait for them to come back together. It's a bet that the relationship holds.

Related terms

correlation
statistical arbitrage
pairs trading
z-score
mean reversion

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Go to “Pairs Trading: Statistical Arbitrage”