K-Means Clustering Algorithm For Pair Selection In Python – Part V


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See the prior installment in this series here.

Spread is not Cointegrated

The results of the Augmented Dickey Fuller Test showed that Walmart and Target were not cointegrated. This is determined by a test statistic that is not less than one of the critical values. If you would like to view the actual print out of the ADF test you can do so by keying ADF. In the above example, we use indexing to decipher between the t-statistic and critical values. The statsmodels ADF Test provides you with other useful information such as the p-value. You can learn more about the ADF test here

#printing out the results of the adf test
{‘1%’: -3.4434175660489905,
‘10%’: -2.5698395516760275,
‘5%’: -2.8673031724657454},

Okay, let’s try one more. Maybe we’ll have better luck identifying a tradable relationship in a brute force manner. How about Dollar Tree and Dollar General. They’re both discount retailers and look they both even have a dollar in their names. Since we’ve gotten the hang of things, we jump right into the ADF test. Let’s first import the data for DLTR and DG.

#importing dltr and dg
dltr=pdr.get_data_yahoo(‘DLTR’,start, end)
dg=pdr.get_data_yahoo(‘DG’,start, end)

Stay tuned -for the next installment in this series. Lamarcus will demonstrate how to add these stocks to the newDF and create their spread.

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