Cointegration Analysis

Cointegration analysis is a statistical technique used to determine if two or more time series have a stable, long-term relationship. In trading, it is used to identify pairs of assets that tend to move together over time, even if they diverge in the short term.

If two assets are cointegrated, the spread between them is mean-reverting, making them ideal candidates for pairs trading. This is more robust than simple correlation, as it accounts for the underlying stochastic trends of the assets.

In crypto, cointegration is often applied to related tokens or different derivatives of the same underlying asset. By confirming that a relationship is statistically valid, traders can execute mean-reversion trades with higher confidence.

It helps prevent false signals that might arise from temporary price co-movements.