# Cointegration

Template:Expert-subject Cointegration is a statistical property of time series variables. Two or more time series are cointegrated if they share a common stochastic drift.

## Introduction

If two or more series are individually integrated (in the time series sense) but some linear combination of them has a lower order of integration, then the series are said to be cointegrated. A common example is where the individual series are first-order integrated (I(1)) but some (cointegrating) vector of coefficients exists to form a stationary linear combination of them. For instance, a stock market index and the price of its associated futures contract move through time, each roughly following a random walk. Testing the hypothesis that there is a statistically significant connection between the futures price and the spot price could now be done by testing for the existence of a cointegrated combination of the two series. (If such a combination has a low order of integration—in particular if it is I(0), this can signify an equilibrium relationship between the original series, which are said to be cointegrated.)

## References

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|CitationClass=journal }} An intuitive introduction to cointegration.