What is the term for the difference between the predicted price of a dependent stock and its actual price in a linear regression model?

Standard Error Residuals Intercept Slope

What does the 'Standard Error' in a linear regression model represent?

The variance of the intercept The standard deviation of the residuals The difference between the predicted and actual stock prices The strength of the relationship between the two stocks

What is the 'Error Ratio' used for in pair trading?

To predict the future price of a stock To determine the correlation between two stocks To decide which stock should be the independent variable and which should be the dependent variable To calculate the expected return from a pair trade

How is the 'Error Ratio' calculated?

Standard Error of the Intercept multiplied by the Standard Error Standard Error divided by the Standard Error of the Intercept Standard Error of the Intercept plus the Standard Error Standard Error of the Intercept divided by the Standard Error

What is the significance of a lower 'Error Ratio' in pair trading?

It indicates a weaker relationship between the two stocks It suggests a higher risk associated with the pair trade It implies a more accurate regression model for predicting the dependent stock's price It signifies a lower potential profit from the pair trade