VEC trading, short for Vector Error Correction trading, uses the Vector Error Correction Model (VECM) to exploit cointegration between related assets.

VEC trading, short for Vector Error Correction trading, uses the Vector Error Correction Model (VECM) to exploit cointegration between related assets. When two or more markets share a stable long‑run relationship, short‑term divergences tend to mean‑revert. VECM quantifies that equilibrium and generates signals that buy undervalued legs and sell overvalued legs, aiming to capture the spread’s move back to fair value. Traders apply VECM across equities, ETFs, futures, FX, and crypto pairs. The workflow typically includes data cleaning, Johansen cointegration tests, regime checks, model estimation, signal thresholds, hedging ratios, and robust risk controls (stops, volatility scaling, and position limits). With walk‑forward validation and out‑of‑sample backtests, VEC trading can provide diversified, market‑neutral returns with lower directional exposure than trend or momentum strategies. Whether you’re building a systematic stat‑arb desk or enhancing a discretionary pairs program, VEC trading offers a transparent, research‑driven framework. On this page, you’ll find practical guidance, templates, and tools to help you test, deploy, and monitor VECM strategies with confidence.

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