Options Jive

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Correlation vs. Cointegration

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Here we discuss correlation and cointegration, the differences between them, how they're measured, and what they're each used for. We also look at examples of ETF pairs that demonstrate both correlation and cointegration!

Although they are often related, correlated assets tend to move in tandem while cointegrated assets tend to have a mean-reverting spread. This makes correlation ideal when focusing on portfolio diversification, and cointegration ideal for strategies that rely on mean-reversion.

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