Cointegration vs Correlation

What is the difference between correlation and cointegration?

Answer

Correlation measures the short-run linear relationship or linear co-movement between two variables. It does not imply any long-term relationship.

Cointegration refers to a long-run equilibrium relationship between two or more non-stationary time series.

Notes and comments

Comment 1: Two series can be correlated but not cointegrated (they move together in the short run (days, weeks, months) but drift apart over time), or cointegrated but not highly correlated (they share a long-run equilibrium despite lack of short-term correlation).

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