-
Book Overview & Buying
-
Table Of Contents
Machine Learning for Finance
By :
Stationarity can mean different things, and it is crucial to understand which kind of stationarity is required for the task at hand. For simplicity, we will just look at two kinds of stationarity here: mean stationarity and variance stationarity. The following image shows four time series with different degrees of (non-)stationarity:

Mean stationarity refers to the level of a series being constant. Here, individual data points can deviate, of course, but the long-run mean should be stable. Variance stationarity refers to the variance from the mean being constant. Again, there may be outliers and short sequences whose variance seems higher, but the overall variance should be at the same level. A third kind of stationarity, which is difficult to visualize and is not shown here, is covariance stationarity. This refers to the covariance between different lags being constant. When people refer to covariance stationarity, they usually mean the special condition...