Cointegration Test (Engle-Granger) - Quant Researcher Interview Question
Difficulty: Hard
Category: statistical_analysis
Asked at: Jane Street, Jump Trading, Goldman Sachs, Tower Research, Optiver, AQR Capital Management, Citadel Securities
Topics: cointegration, time_series, regression, statistics
Problem Description
Pairs trading strategies utilize cointegration to identify assets that maintain a long-term equilibrium relationship despite individual non-stationarity. The Engle-Granger two-step method validates this relationship by testing the stationarity of residuals derived from a linear regression between two asset price series. This statistical approach is fundamental for detecting mean-reverting signals in quantitative finance.
Task
Implement a function to perform the Engle-Granger cointegration test
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