# Cointegration Rolling Engle-Granger cointegration testing on the chart: a 252-bar regression of log prices against a comparison symbol yields the hedge ratio, and the residual spread is z-scored and tested for stationarity every bar. Entries fire at z-score crosses of the 2 threshold while the pair tests cointegrated at the 5% level; a dashboard adds half-life and status. For pairs and relative-value traders. - Indicator in the LuxAlgo Library, by LuxAlgo, published Apr 21, 2026. - Access: free. - Concepts: [Cointegration](https://www.luxalgo.com/library/concept/cointegration/) (primary) - Open on Vela: https://vela.luxalgo.com/chart?pineScriptCodeId=mz91t65aqwfqchb27n8nowe9 - Page: https://www.luxalgo.com/library/indicator/cointegration/ **Cointegration** is a pairs-testing workstation in one pane, the definitive clean implementation of [cointegration](https://www.luxalgo.com/library/concept/cointegration/) for chart use. Every bar it regresses 252 bars of the chart symbol's log prices on a comparison leg (default SP:SPX) for a hedge ratio, rebuilds the residual spread, z-scores it, and runs the Engle-Granger step: the spread's Dickey-Fuller statistic must beat the MacKinnon critical value to test cointegrated. A dashboard reports hedge ratio, z-score, statistic, half-life and status. ## How to Trade the Cointegration? - **Z-score beyond the entry levels**: a cross above +2 is a short-spread event, below -2 a long-spread event, by default only while the pair tests cointegrated. - **Return to the mean**: exit events fire when the z-score crosses the exit threshold back toward zero. - **Cointegration Established / Lost**: transitions carry alerts; a lost relationship stands entries down: a broken pair's deviations have no reason to revert. ## Cointegration Settings - **Comparison Symbol** (default SP:SPX): second leg of the pair. - **Source** (default close): price series for both legs. - **Use Log Prices** (default on): regression and spread on log levels. - **Formation Window** (default 252): bars behind regression, test and z-score. - **Significance Level** (default 5%): test strictness; critical values -3.90 / -3.34 / -3.04. - **Plot Test Statistic** (default off): plots the rolling statistic and its critical value. - **Entry Threshold** (default 2): z-score arming entry events. - **Exit Threshold** (default 0): reversion exit level; 0 waits for the full return. - **Signals Require Cointegration** (default on): gate entries on a passing test. - **Show Signal Markers** (default off): triangles on entries; alerts fire regardless. - **Show Dashboard** (default on), with position and size options. - Style inputs set the colors and the dimming of the spread while the pair fails the test. ## Frequently Asked Questions ### Is cointegration just strong correlation? No. The [Correlation Coefficient](https://www.luxalgo.com/library/indicator/correlation-coefficient/) scores short-run co-movement of returns; this test interrogates levels: whether the hedge-ratio spread stays tied to a stable mean, the stationarity fading a spread depends on. ### What does the half-life reading mean? It turns the fitted reversion speed into a bar count, the expected time for half of a deviation to bleed away. A half-life approaching the formation window warns the reversion is too slow to lean on. ### Which formation window should I use? The default 252 approximates the classic one-year formation on daily charts. Stretching it buys stability at the price of clinging to broken pairs; shrinking it lets go sooner but false-alarms more. ## Related indicators - [Arbitrage Detector](https://www.luxalgo.com/library/indicator/arbitrage-detector/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/arbitrage-detector.md - [The Echo Forecast](https://www.luxalgo.com/library/indicator/the-echo-forecast/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/the-echo-forecast.md - [Intermarket Swing Projection](https://www.luxalgo.com/library/indicator/intermarket-swing-projection/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/intermarket-swing-projection.md - [Arbitrage Matrix](https://www.luxalgo.com/library/indicator/arbitrage-matrix/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/arbitrage-matrix.md - [Correlated Sine Oscillator](https://www.luxalgo.com/library/indicator/correlated-sine-oscillator/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/correlated-sine-oscillator.md - [Sector Correlation Matrix](https://www.luxalgo.com/library/indicator/sector-correlation-matrix/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/sector-correlation-matrix.md - [Correlation Clusters](https://www.luxalgo.com/library/indicator/correlation-clusters/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/correlation-clusters.md - [Historical Correlation](https://www.luxalgo.com/library/indicator/historical-correlation/) (Correlation): markdown at https://www.luxalgo.com/library/indicator/historical-correlation.md --- Source: https://www.luxalgo.com/library/indicator/cointegration/ (LuxAlgo Library). Free to use with attribution: https://www.luxalgo.com/library/license/