Monday, October 10, 2011

Mutual cointegration, single correlation

To clarify concepts; let X and Y two vectors (series datorum)
  • Cointegration between two data series:
X and Y are 1-cointegrated if exists a, ut such that: xt = a·yt + ut

with u stationary in average and variance.
Cointegration tries to capture historical trends and dynamics between two series.
  • Single correlation between two data series:
Correlation captures any kind of relationship between two series
Does not include any kind of historical trends, considering only how one variable explain point by point the other one.

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