Is the Spread Mean-Reverting? A Regression Test Against a Fictional Table
This lesson is part of the course
In this lesson
You regress the daily change of the spread on yesterday's spread, write out the standard error of the slope, look up a critical value in a fictional table and give a verdict – then repeat it on a toy pair that only wanders.
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Lessons in this course
- Two Price Series: Normalising, Log Returns and a Correlation Written Out Locked
- The Hedge Ratio: SLOPE, the Intercept by Hand and the Spread Locked
- Is the Spread Mean-Reverting? A Regression Test Against a Fictional Table Locked
- Z-Score Signals: Rolling Mean and σ, Entry, Exit and Stop Levels Locked
- Half-Life of Mean Reversion: Sizing the Look-Back Window and the Holding Limit Locked
- Positions and P&L: A State Column, Units per Leg and the Daily Result Locked
- Costs and Capital: Trading Costs, Borrow Fees, Trade Count and Maximum Drawdown Locked
- Capstone: In-Sample vs Out-of-Sample, a Drifting Hedge Ratio and a Threshold Grid Locked