Hypotheses
MSFT/ORCL Log-Price Cointegration with Price-Corrected Share Hedging
Derived by the Research Lead from 43zombiegit's 'Cointegration and hedge ratio': operationalize the question about regression coefficients and trade quantities as a two-stock pairs experiment. The source discusses…
Hypothesis
Derived by the Research Lead from 43zombiegit's 'Cointegration and hedge ratio': operationalize the question about regression coefficients and trade quantities as a two-stock pairs experiment. The source discusses hedge-ratio interpretation but supplies no executable strategy. Research Lead choices are MSFT/ORCL, daily bars, rolling log-price cointegration estimation, residual reversal entries, frozen trade-level coefficients, and explicit exits. Regress log PRICE LEVELS rather than log returns: return regression estimates return exposure, not a cointegrating relationship. Convert the log-price coefficient into dollar exposure and then shares; never interpret it directly as a share ratio. Trade both spread directions using USEQ margin, with market orders at completed daily closes. No next-session-open execution is required. This tests a software-sector relationship without claiming that these stocks are already known to be cointegrated.
Analysis
Cointegration and hedge ratio
Backtest and paper results are hypothetical. Trading involves risk of loss.