Integration, Cointegration, and Stationarity

Stationarity is a vital concept in statistics, and underlies many tests as an assumed condition. In finance often series are not stationary, and so it is important to understand how to test for it and how it behaves. As an extension of stationarity, we discuss integration and cointegration. These are time series analysis techniques that are used in pairs trading and other forms of statistical arbitrage.

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