Spot and futures prices offer the cleanest finance check on the complete cointegration workflow. Cost of carry predicts a bounded, adjusted basis; that economic restriction must appear as an I(0) combination before an ECM or trading rule is trusted. The same workflow is the statistical precondition for a pairs-trading spread.
Learning objectives. By the end of this note you should be able to:
- move from level diagnostics to a tested spot--futures equilibrium;
- read adjustment coefficients as lead--lag evidence;
- separate a cointegration test from a profitable trading strategy.
In this lesson
- Example 1 — An index and its futures contract
- Example 3 — From hedge ratio to pairs screen
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
Read the full lessonNew to SelfMadeQuant.com? See membership options or browse the Econometrics and Financial Time Series syllabus.