What does an ADF value of 0.048 suggest in the context of pair trading?

There is a 4.8% chance the residual is non-stationary There is a 95.2% chance the residual is stationary The pair trade is highly profitable The pair trade is extremely risky

Why might a trader choose not to execute a pair trade even if the ADF value and residual values seem favorable?

The lot sizes of the two stocks may not match The beta value might be too high The intercept value might be too high The stocks might be in different sectors

What does the beta value (0.79) represent in the context of the ICICI Bank and HDFC Bank pair trade?

The correlation between the two stocks The ratio of ICICI Bank shares to HDFC Bank shares for a beta-neutral trade The percentage difference in their stock prices The probability of the trade being successful

What is the key takeaway from the analysis of the intercept in the given pair trading example?

A high intercept indicates a large portion of the stock price can be explained by the regression model A high intercept suggests the pair trade is likely to be profitable A high intercept implies a significant portion of the stock price cannot be explained by the regression model The intercept value is not relevant in pair trading

How is position sizing determined in pair trading when the lot sizes of the two stocks are different?

By ignoring the lot sizes and trading an equal number of shares By adjusting the number of lots traded to achieve a beta-neutral position By focusing solely on the stock with the larger lot size By randomly selecting the number of lots to trade