**Cointegration Definition**

Cointegration is an econometric technique for testing the correlation between non-stationary time series variables. If two or more series are themselves non-stationary, but a linear

combination of them is stationary, then the series are said to be cointegrated. For instance, a

stock index and the

price of its associated

futures contract move through time, each roughly following a random walk. Testing the hypothesis that there is a statistically significant connection between the

future price and the

spot price could

now be done by finding a cointegrating vector. (If such a vector has a

low order of integration it can signify an equilibrium relationship between the original series, which are said to be cointegrated of an order below one.)