Is fractional differentiation worth the complexity over simple returns? #27
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martex-dev
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Is fractional differentiation worth the complexity over simple returns? Notes and answer below. |
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martex-dev
Aug 27, 2026
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It depends on whether the level carries information for your target. Taking returns makes the series stationary but discards memory of where the price is relative to its history, which matters for mean-reversion style targets. Fractional differentiation finds the minimum differencing order that still passes a stationarity test, preserving as much memory as possible. If your target is purely directional over short horizons, plain returns are usually enough. |
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It depends on whether the level carries information for your target. Taking returns makes the series stationary but discards memory of where the price is relative to its history, which matters for mean-reversion style targets. Fractional differentiation finds the minimum differencing order that still passes a stationarity test, preserving as much memory as possible. If your target is purely directional over short horizons, plain returns are usually enough.