Good job, it's always good to have numbers backing you. A more compeling test would be to take the same pairs out of sample and see if the cointegration holds.
What do you mean ? I think these pairs are arrived at using backtesting. Are you suggesting paper trading these pairs to see if they hold in future ?
The latest version 303 is miscalculating the cointegration. I checked and double checked with catalyst corner and after reverting to the older version. beware...
Could be that. What I meant was that you should have backtest you thing on say, 2009 (in sample) and then select your pairs and adjust your parameter values with that data. Then, with this, you backtest (out of sample) on 2010 data and see if it holds becaues it is that that you would have traded. As a bonus, you could run you backtest on a non trendy or abnormal year like 2008 and see the house of cards you may have, I dont know.
+1 Your weighting of the stocks in the pair should match how you chart it when conducting your analysis. Typically, weighting schemes are by shares, dollars, or volatility. Your attached charts appear to be ratio charts which align with equal dollar-weighting, just as optioncoach advises.
I asked Jared this exact question, as I noticed the same thing. Here is his response: Kevin, This depends on the datafeed and the stocks. Using the yahoo feed with large stocks is correct 99.9% of the time, they adjust the prices and are reflected in our historical data, with IQfeed it's always right, so it doesn't affect backtest results. It's easy to see with a low liquid stock in yahoo whether's it been affected by large spikes. Regards, Jared. He really did not answer the question about whether or not the backtest data and Deltas are affected by this (I can't see how they wouldn't be). He talked about spikes, not splits.
I don't know why he mentions spikes and low volume. Thats not the issue. When there is a stock split all the data is destroyed and the software generates completely false signals. For example, TMK did a 3-for-2 yesterday and every pair with that stock went haywire in the software. This is a really bad bug that has to be fixed.