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

###### Posted October 23, 2019 at 10:41 am
Lamarcus Coleman
QuantInsti

See the prior installment in this series here.

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
(-0.38706825965317432,
0.91223562790079438,
0,
503,
{‘1%’: -3.4434175660489905,
‘10%’: -2.5698395516760275,
‘5%’: -2.8673031724657454},
1190.4266834075452)

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.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclaimer: All investments and trading in the stock market involve risk. Any decisions to place trades in the financial markets, including trading in stock or options or other financial instruments is a personal decision that should only be made after thorough research, including a personal risk and financial assessment and the engagement of professional assistance to the extent you believe necessary. The trading strategies or related information mentioned in this article is for informational purposes only.

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