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Statistical Arbitrage Strategy

This statistical arbitrage approach trades a pair of related securities based on their relative positioning around moving averages. By comparing each asset to its own average, the strategy seeks to exploit short-term dislocations that should converge over time.

Testing indicates an average annual return of about 94%. It performs best in the stocks market.

A long position is initiated when the first asset trades below its moving average while the second asset trades above its own average. A short position occurs when the first asset is above its average and the second is below. Positions are closed when the first asset crosses back through its moving average, signalling the spread has normalized.

The method is ideal for market-neutral traders comfortable balancing exposure across two instruments. The built-in stop-loss limits drawdowns if the spread widens further instead of reverting.

Details

  • Entry Criteria:
    • Long: Asset1 < MA1 && Asset2 > MA2
    • Short: Asset1 > MA1 && Asset2 < MA2
  • Long/Short: Both sides.
  • Exit Criteria:
    • Long: Exit when Asset1 closes above its MA1
    • Short: Exit when Asset1 closes below its MA1
  • Stops: Yes, percent stop-loss on spread.
  • Default Values:
    • LookbackPeriod = 20
    • StopLossPercent = 2m
    • CandleType = TimeSpan.FromMinutes(15)
  • Filters:
    • Category: Arbitrage
    • Direction: Both
    • Indicators: Moving Averages
    • Stops: Yes
    • Complexity: Intermediate
    • Timeframe: Intraday
    • Seasonality: No
    • Neural networks: No
    • Divergence: Yes
    • Risk Level: Medium
using System;
using System.Linq;
using System.Collections.Generic;

using Ecng.Common;
using Ecng.Collections;
using Ecng.Serialization;

using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Messages;

namespace StockSharp.Samples.Strategies;
	
/// <summary>
/// Statistical Arbitrage strategy that trades pairs of securities based on their relative mean reversion.
/// Enters when one asset is below its mean while the other is above its mean.
/// </summary>
public class StatisticalArbitrageStrategy : Strategy
{
	private readonly StrategyParam<int> _lookbackPeriod;
	private readonly StrategyParam<decimal> _stopLossPercent;
	private readonly StrategyParam<DataType> _candleType;
	private readonly StrategyParam<Security> _secondSecurity;
	
	private SimpleMovingAverage _firstMA;
	private SimpleMovingAverage _secondMA;
	
	private decimal _lastFirstPrice;
	private decimal _lastSecondPrice;
	private decimal _entrySpread;
	private decimal _secondMAValue;
	
	/// <summary>
	/// Period for calculating moving averages.
	/// </summary>
	public int LookbackPeriod
	{
		get => _lookbackPeriod.Value;
		set => _lookbackPeriod.Value = value;
	}
	
	/// <summary>
	/// Stop-loss percentage parameter.
	/// </summary>
	public decimal StopLossPercent
	{
		get => _stopLossPercent.Value;
		set => _stopLossPercent.Value = value;
	}
	
	/// <summary>
	/// Candle type parameter.
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}
	
	/// <summary>
	/// Second security in the pair.
	/// </summary>
	public Security SecondSecurity
	{
		get => _secondSecurity.Value;
		set => _secondSecurity.Value = value;
	}
	
	/// <summary>
	/// Constructor.
	/// </summary>
	public StatisticalArbitrageStrategy()
	{
		_lookbackPeriod = Param(nameof(LookbackPeriod), 20)
			.SetGreaterThanZero()
			.SetDisplay("Lookback Period", "Period for calculating moving averages", "Parameters")
			
			.SetOptimize(10, 30, 5);
			
		_stopLossPercent = Param(nameof(StopLossPercent), 2m)
			.SetGreaterThanZero()
			.SetDisplay("Stop-loss %", "Stop-loss as percentage of entry price", "Risk Management")
			
			.SetOptimize(1m, 3m, 0.5m);
			
		_candleType = Param(nameof(CandleType), TimeSpan.FromMinutes(15).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles to use", "General");
			
		_secondSecurity = Param<Security>(nameof(SecondSecurity))
			.SetDisplay("Second Security", "Second security in the pair", "General")
			.SetRequired();
	}
	
	/// <inheritdoc />
	public override IEnumerable<(Security sec, DataType dt)> GetWorkingSecurities()
	{
		return
		[
			(Security, CandleType),
			(SecondSecurity, CandleType)
		];
	}
	
	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();

		_firstMA = null;
		_secondMA = null;
		_lastFirstPrice = 0;
		_lastSecondPrice = 0;
		_entrySpread = 0;
		_secondMAValue = 0;
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		base.OnStarted2(time);

		if (SecondSecurity == null)
			throw new InvalidOperationException("Second security is not specified.");

		// Initialize indicators
		_firstMA = new() { Length = LookbackPeriod };
		_secondMA = new() { Length = LookbackPeriod };

		// Create subscriptions for both securities
		var firstSecuritySubscription = SubscribeCandles(CandleType);
		var secondSecuritySubscription = SubscribeCandles(CandleType, security: SecondSecurity);

		// Bind to first security candles
		firstSecuritySubscription
			.Bind(_firstMA, ProcessFirstSecurityCandle)
			.Start();

		// Bind to second security candles
		secondSecuritySubscription
			.Bind(ProcessSecondSecurityCandle)
			.Start();

		// Enable position protection with stop-loss
		StartProtection(
			takeProfit: new Unit(0, UnitTypes.Absolute), // No take-profit
			stopLoss: new Unit(StopLossPercent, UnitTypes.Percent) // Stop-loss as percentage
		);
		
		// Setup chart if available
		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, firstSecuritySubscription);
			DrawIndicator(area, _firstMA);
			DrawOwnTrades(area);
		}
	}
	
	private void ProcessFirstSecurityCandle(ICandleMessage candle, decimal firstMAValue)
	{
		// Skip unfinished candles
		if (candle.State != CandleStates.Finished)
			return;

		// Store current price
		_lastFirstPrice = candle.ClosePrice;

		// Skip if we don't have both prices or if indicators aren't formed
		if (_lastSecondPrice == 0 || !_firstMA.IsFormed || !_secondMA.IsFormed)
			return;

		// Get last second MA value stored earlier
		decimal secondMAValue = _secondMAValue;
		
		// Trading logic
		bool isFirstBelowMA = _lastFirstPrice < firstMAValue;
		bool isSecondAboveMA = _lastSecondPrice > secondMAValue;
		bool isFirstAboveMA = _lastFirstPrice > firstMAValue;
		bool isSecondBelowMA = _lastSecondPrice < secondMAValue;
		
		decimal currentSpread = _lastFirstPrice - _lastSecondPrice;
		
		// Long signal: First asset below MA, Second asset above MA
		if (isFirstBelowMA && isSecondAboveMA)
		{
			// If we're not already in a long position
			if (Position <= 0)
			{
				BuyMarket(Volume + Math.Abs(Position));
				_entrySpread = currentSpread;
				LogInfo($"Long Signal: {Security.Code}({_lastFirstPrice:F4}) < MA({firstMAValue:F4}) && " + 
						$"{SecondSecurity.Code}({_lastSecondPrice:F4}) > MA({secondMAValue:F4})");
				
				// Note: In a real implementation, you would also place a sell order
				// for the second security here, using a different strategy instance or connector
			}
		}
		// Short signal: First asset above MA, Second asset below MA
		else if (isFirstAboveMA && isSecondBelowMA)
		{
			// If we're not already in a short position
			if (Position >= 0)
			{
				SellMarket(Volume + Math.Abs(Position));
				_entrySpread = currentSpread;
				LogInfo($"Short Signal: {Security.Code}({_lastFirstPrice:F4}) > MA({firstMAValue:F4}) && " + 
						$"{SecondSecurity.Code}({_lastSecondPrice:F4}) < MA({secondMAValue:F4})");
				
				// Note: In a real implementation, you would also place a buy order
				// for the second security here, using a different strategy instance or connector
			}
		}
		// Exit signals
		else if ((Position > 0 && isFirstAboveMA) || (Position < 0 && isFirstBelowMA))
		{
			// Exit position when first asset crosses its moving average
			if (Position > 0)
			{
				SellMarket(Math.Abs(Position));
				LogInfo($"Exit Long: {Security.Code}({_lastFirstPrice:F4}) > MA({firstMAValue:F4})");
			}
			else if (Position < 0)
			{
				BuyMarket(Math.Abs(Position));
				LogInfo($"Exit Short: {Security.Code}({_lastFirstPrice:F4}) < MA({firstMAValue:F4})");
			}
		}
	}
	
	private void ProcessSecondSecurityCandle(ICandleMessage candle)
	{
		// Skip unfinished candles
		if (candle.State != CandleStates.Finished)
			return;

		// Store current price
		_lastSecondPrice = candle.ClosePrice;
	
		// Process through MA indicator and store last value
		var maValue = _secondMA.Process(new DecimalIndicatorValue(_secondMA, candle.ClosePrice, candle.ServerTime) { IsFinal = true });
		_secondMAValue = maValue.ToDecimal();
	}
}