Could someone please help me with solving the following questions ?
I formed a stock universe where the program seeks cointegrated pairs using python (stocks from SP500). Also there are functions to plot the spread.
So I defined z-score, linear regression and price ratio functions.
Here are GILD/WFC pair, for instance. The slope for our combination is 0.74
1. What exactly positions should I open using the z-score plot at the current moment (when z-score below 0 , around -2)? Should it be opened short WFC vs long 0.74*GILD or long WFC vs short 0.74*GILD ?
Thank's in advance.