
A footnote to this: you may want to look beyond cointegrating frameworks for your answer. As a practical matter, these mechanisms are often effective over horizons that are too long for hedging. Depending on what you are trying to model, you may do better with less theoretically hygienic short run dynamics. The ADF test would then not be an issue.

Cheers
Luke





From: r-sig-finance-bounces@stat.math.ethz.ch [mailto:r-sig-finance-bounces@stat.math.ethz.ch] On Behalf Of Edouard Tallent
Sent: Thursday, 25 February 2010 9:05 AM
To: r-sig-finance@stat.math.ethz.ch
Subject: [R-SIG-Finance] [RE] Lagging Correlations


hi NG.

you are right in that correlation is not causation.
besides, the adf test is not exactly a correlation test between two or more series.
and, hedging might actually be more complicated than finding out a sole correlated "instrument", as you write.

what exactly do you aim to ? which is the "instrument" you want to hedge ?
please, help us to help you. we then would guide you the right econometric/financial/R documentations.

see you,
édouard







Message: 4
Date: Tue, 23 Feb 2010 14:38:34 -0600
From: Neil Gupta
To: r-sig-finance
Subject: [R-SIG-Finance] Lagging Correlations
Message-ID:

Content-Type: text/plain

Dear List,

I am working with an instrument which has only weekly data. I am trying to
find a hedging instrument using methods of correlation and cointegration.
Does R have a package which can lag a series until it finds the best
correlation. I have tried the ADF test and have not found any solid values.

I understand correlation does not imply causation but I have not found any
other statistic that can help me find a potential hedging instrument.
If you have any suggestions with this type of data I would appreciate it.

Cheers,
NG

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