Course Name: Mean Reversion Strategies In Python, Section No: 9, Unit No: 4, Unit type: WaterMarkVideo
Hi there, it mentioned need to regularly check the cointegration in this unit, I have a question when checking it daily, weekly or monthly, do we need recalculate the hedge ratio? Another question is do we only use daily price to calculate the hedge ratio and run the CADF test? Is lower time frame allowed?
Technically, you can check and recalculate the hedge ratio at the same frequency. Here, the point is if you are going to trade on lower timeframe, then yes, you can calculate the hedge ratio at lower time frame.
You should understand that higher number of trades (due to rebalancing) will mean higher transactions which will affect your performance. So you should take the decision with that in mind as well.
Hope this helps.