If you have a price series with autocorrelation = 1, what trading strategy can you devise on this price series? If you have a price series with autocorrelation = -1, what trading strategy can you devise on this price series? Thanks!
At 1 and -1, you're looking at a deterministic relationship. Assuming no one else knows what you know about this relationship, buy/sell contracts around incorrect prices determined by your perfect knowledge and hope those with inferior information accept your prices, and be the first to do it.
I disagree, it is not that simple of a question. In general there are noise terms in autoregressive models so they are not deterministic. Autocorrelation of 1: P2 = P1 + noise ---> random walk. Autocorrelation of -1: P2 = - P1 + noise ---> don't know what to call this and can't exist b/c stock prices can't be negative, but still not deterministic OP, did you really mean autocorrelation in price series or return/price change series?
Autocorrelation does not imply profit. These are very trivial studies most mathemtically oriented tarders do very early in their carrier only to discover that even with autocorrelation =1 there can be no strategy that can offer a profit factor significantly greater than 1.