cross-asset-arbitrage-engine

Cross-Asset Arbitrage Engine

import numpy as np
import pandas as pd
from statsmodels.tsa.stattools import coint, adfuller

class ArbitrageEngine:

    @staticmethod
    def cointegration_test(series_a: pd.Series, series_b: pd.Series) -> dict:
        """Test if two series are cointegrated (mean-reverting spread)."""
        score, pvalue, _ = coint(series_a.dropna(), series_b.dropna())
        return {
            "cointegrated": pvalue < 0.05,
            "p_value": round(pvalue, 4),
            "test_stat": round(score, 4),
            "signal": "COINTEGRATED — pairs trade viable" if pvalue < 0.05 else "NOT cointegrated — avoid pairs trade",
        }

    @staticmethod
    def hedge_ratio(series_a: pd.Series, series_b: pd.Series) -> dict:
        """OLS hedge ratio for pairs trade construction."""
        from numpy.polynomial.polynomial import polyfit
        b, a = np.polyfit(series_b, series_a, 1)
        spread = series_a - b * series_b
        adf_stat, adf_p, *_ = adfuller(spread.dropna())
        return {
            "hedge_ratio": round(b, 6),
            "intercept": round(a, 6),
            "spread_stationary": adf_p < 0.05,
            "spread_adf_p": round(adf_p, 4),
            "entry_rule": f"Buy A, sell {abs(b):.4f} B when z-score < -2. Reverse when z-score > 2.",
        }

    @staticmethod
    def triangular_arb_check(rates: dict) -> dict:
        """
        Check for triangular arbitrage opportunity.
        rates: {"EURUSD": 1.0850, "GBPUSD": 1.2650, "EURGBP": 0.8570}
        """
        try:
            eurusd = rates["EURUSD"]
            gbpusd = rates["GBPUSD"]
            eurgbp = rates["EURGBP"]
            # Path 1: USD → EUR → GBP → USD
            implied_eurgbp = eurusd / gbpusd
            arb_1 = (implied_eurgbp / eurgbp - 1) * 10000  # in pips
            # Path 2: USD → GBP → EUR → USD
            implied_eurusd = eurgbp * gbpusd
            arb_2 = (implied_eurusd / eurusd - 1) * 10000
            return {
                "implied_eurgbp": round(implied_eurgbp, 5),
                "actual_eurgbp": eurgbp,
                "arb_pips": round(arb_1, 1),
                "opportunity": abs(arb_1) > 2,
                "direction": "Buy EURGBP" if arb_1 < -2 else "Sell EURGBP" if arb_1 > 2 else "No arb",
                "note": "Account for spread + execution latency. Sub-2pip arbs rarely executable.",
            }
        except KeyError:
            return {"error": "Need EURUSD, GBPUSD, EURGBP rates"}

    @staticmethod
    def spread_z_score_signals(spread: pd.Series, window: int = 60,
                                entry_z: float = 2.0, exit_z: float = 0.5) -> pd.DataFrame:
        """Generate entry/exit signals from spread z-score."""
        mean = spread.rolling(window).mean()
        std = spread.rolling(window).std()
        z = (spread - mean) / std.replace(0, np.nan)
        signals = pd.DataFrame(index=spread.index)
        signals["z_score"] = z
        signals["signal"] = 0
        signals.loc[z < -entry_z, "signal"] = 1   # Buy spread
        signals.loc[z > entry_z, "signal"] = -1    # Sell spread
        signals.loc[z.abs() < exit_z, "signal"] = 0  # Exit
        return signals

    @staticmethod
    def scan_cointegrated_pairs(prices: pd.DataFrame, max_pvalue: float = 0.05) -> list[dict]:
        """Scan all pair combinations for cointegration."""
        symbols = prices.columns.tolist()
        results = []
        for i, a in enumerate(symbols):
            for b in symbols[i+1:]:
                try:
                    test = ArbitrageEngine.cointegration_test(prices[a], prices[b])
                    if test["cointegrated"]:
                        hr = ArbitrageEngine.hedge_ratio(prices[a], prices[b])
                        results.append({"pair": f"{a}/{b}", **test, **hr})
                except: continue
        return sorted(results, key=lambda x: x["p_value"])