Analyzing nifty Cointegration for pair stocks trading

First let's look at the graph

If you carefully look into dark green colored cells those are ones with low p value which means there could be relationship makes them co-integrated.

For example, HDFCBANK on 4th row has a strong possible relationship with KOTAKBANK(0.00000135), BAJAJFINSV (value of 0.000585). That means on average they both keep the ratio of stock value somewhat the same.

By no means I am recommending pairs here, its just analysis and outcome suggest possibility of a relationship. For example, consider INDUSINDBK indicates relationship with DRREDDY which needs further analysis to rule out the possibility.

For Better filtering, showing only with p value < .05

Further comparing ratios will give you a better understanding of what are we dealing with here. Generally for a good dependable relationship should have ratio line moving back and forth the mean. In other words ratio of HDFCBANK and KOTAKBANK is fairly stable in last 3 years.

As shown in the above image, HDFCBANK is not maintaining a stable relationship with ICICIBANK but with KOTAK it is a bit credible.

Let me know your thoughts! I am not an expert in the field just trying to learn every day! and exploring different techniques.

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