FINDING THE IDENTICAL TWIN
Keywords:
Mean Reversion, Correlation, Pairs Trading, Stock Market, World Market, Portfolio Management, Stock Investing, ADF Test, Augmented Dickey Fuller Test, Time SeriesAbstract
In this paper we examine correlation and mean reverting behavior of Dow Jones Industrial Average, with ten stock markets from Asia, Europe and America. Along with correlation test, Augmented Dickey Fuller Test is conducted to test the mean reverting behavior of time series. We found that all the markets are positively correlated with DJIA. We also confirm that high degree of correlation does not result in mean reversion between two time series.
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