Cointegration

Part of speech: noun

Definitions

1. A statistical property of time series variables indicating that a linear combination of them is stationary despite individual non-stationarity, often used in econometrics to detect a long-run equilibrium relationship
2. The condition where two or more non-stationary data series are linked by a stable, long-term connection such that their residuals do not wander randomly over time
3. A concept in time series analysis describing when integrated variables move together over time in a way that their combination remains stable, implying an equilibrium association among them

Etymology: "Cointegration" is a compound of "co-" and "integration," and both halves carry a meaning that suits the statistical idea. "Integration" in its mathematical sense refers to combining quantities over time, and in time-series analysis a variable is described as "integrated" to a certain order depending on how many differencing steps are needed to make it stationary. Two series that are each integrated in this way can, in special cases, be combined so that the result no longer drifts, and the prefix "co-" marks that joint behaviour. The prefix does most of the work here. "Co-" simply means "together" or "jointly," as in "coordinate" or "coexist," so the word reads literally as the integrating of variables together. The meaning is therefore not a metaphor but a direct description: several series move in step so that their combination is stable over the long run.

Synonyms: statistical relationship, long-term equilibrium, co-movement