Well I though a hybrid price would be the answer to figuring out whether a basket of securities as a whole is trending or not. However, after I took a nap and looked at it I realized that although the hybrid price of the three securities may be flatlining the components may be trending opposite in direction to each other. So has another tried to figure out statistically whether a basket of different securities is "trending" overall or not? Can it be done? Thanks in advance.
Yes of course.. do some searches on "cointegration" and prepare to read.. and read.. and then read some more..
Hey Stephen, Thanks for the lead. I will check out some works on conintegration + multicointegration later tonight.
Question> Stephen as you have some experience with this could you link me to some resources explaining how to run multicointegration analysis on excel for multiple series of data? I have found this tutorial on gummy stuff which was helpful but is there any others dealing with multicointegration calculations and techniques on excel? http://www.gummy-stuff.org/cointegration.htm
Multivariate cointegration is too tough for excel to handle.. you'll need some more specialzed software, or get matlab and checkout the library at http://www.spatial-econometrics.com
Could one of you here 'bite size' / explain cointegration for me? What is it used for in layman's terms? Granville
Got it... the 'gummy' material was easier to digest then the wall of math in the other paper. It looks to me like this stuff would be very useful in pairs trading.
Thanks Stephen. I do have matlab but have never really played with it all that much. I will check out that link and see if I can get the calculations done in Matlab.