PearsonCorrelationPairsTradingAlphaModel.cs

/*
 * QUANTCONNECT.COM - Democratizing Finance, Empowering Individuals.
 * Lean Algorithmic Trading Engine v2.0. Copyright 2014 QuantConnect Corporation.
 *
 * Licensed under the Apache License, Version 2.0 (the "License");
 * you may not use this file except in compliance with the License.
 * You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0
 *
 * Unless required by applicable law or agreed to in writing, software
 * distributed under the License is distributed on an "AS IS" BASIS,
 * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
 * See the License for the specific language governing permissions and
 * limitations under the License.
*/
 
using MathNet.Numerics.Statistics;
using QuantConnect.Data;
using QuantConnect.Data.UniverseSelection;
using System;
using System.Collections.Generic;
using System.Linq;
 
namespace QuantConnect.Algorithm.Framework.Alphas
{
    /// <summary>
    /// This alpha model is designed to rank every pair combination by its pearson correlation
    /// and trade the pair with the hightest correlation
    /// This model generates alternating long ratio/short ratio insights emitted as a group
    /// </summary>
    public class PearsonCorrelationPairsTradingAlphaModel : BasePairsTradingAlphaModel
    {
        private readonly int _lookback;
        private readonly Resolution _resolution;
        private readonly double _minimumCorrelation;
        private Tuple<Symbol, Symbol> _bestPair;
 
        /// <summary>
        /// Initializes a new instance of the <see cref="PearsonCorrelationPairsTradingAlphaModel"/> class
        /// </summary>
        /// <param name="lookback">Lookback period of the analysis</param>
        /// <param name="resolution">Analysis resolution</param>
        /// <param name="threshold">The percent [0, 100] deviation of the ratio from the mean before emitting an insight</param>
        /// <param name="minimumCorrelation">The minimum correlation to consider a tradable pair</param>
        public PearsonCorrelationPairsTradingAlphaModel(int lookback = 15, Resolution resolution = Resolution.Minute, decimal threshold = 1m, double minimumCorrelation = .5)
            : base(lookback, resolution, threshold)
        {
            _lookback = lookback;
            _resolution = resolution;
            _minimumCorrelation = minimumCorrelation;
        }
 
        /// <summary>
        /// Event fired each time the we add/remove securities from the data feed
        /// </summary>
        /// <param name="algorithm">The algorithm instance that experienced the change in securities</param>
        /// <param name="changes">The security additions and removals from the algorithm</param>
        public override void OnSecuritiesChanged(QCAlgorithm algorithm, SecurityChanges changes)
        {
            NotifiedSecurityChanges.UpdateCollection(Securities, changes);
 
            var symbols = Securities.Select(x => x.Symbol).ToArray();
 
            var history = algorithm.History(symbols, _lookback, _resolution);
 
            var vectors = GetPriceVectors(history);
 
            if (vectors.LongLength == 0)
            {
                algorithm.Debug($"PearsonCorrelationPairsTradingAlphaModel.OnSecuritiesChanged(): The requested historical data does not have series of prices with the same date/time. Please consider increasing the looback period. Current lookback: {_lookback}");
            }
            else
            {
                var pearsonMatrix = Correlation.PearsonMatrix(vectors).UpperTriangle();
 
                var maxValue = pearsonMatrix.Enumerate().Where(x => Math.Abs(x) < 1).Max();
                if (maxValue >= _minimumCorrelation)
                {
                    var maxTuple = pearsonMatrix.Find(x => x == maxValue);
                    _bestPair = Tuple.Create(symbols[maxTuple.Item1], symbols[maxTuple.Item2]);
                }
            }
 
            base.OnSecuritiesChanged(algorithm, changes);
        }
 
        /// <summary>
        /// Check whether the assets pass a pairs trading test
        /// </summary>
        /// <param name="algorithm">The algorithm instance that experienced the change in securities</param>
        /// <param name="asset1">The first asset's symbol in the pair</param>
        /// <param name="asset2">The second asset's symbol in the pair</param>
        /// <returns>True if the statistical test for the pair is successful</returns>
        public override bool HasPassedTest(QCAlgorithm algorithm, Symbol asset1, Symbol asset2)
        {
            return _bestPair != null && asset1 == _bestPair.Item1 && asset2 == _bestPair.Item2;
        }
 
        private double[][] GetPriceVectors(IEnumerable<Slice> slices)
        {
            var symbols = Securities.Select(x => x.Symbol).ToArray();
            var timeZones = Securities.ToDictionary(x => x.Symbol, y => y.Exchange.TimeZone);
 
            // Special case: daily data and securities from different timezone
            var isDailyAndMultipleTimeZone = _resolution == Resolution.Daily && timeZones.Values.Distinct().Count() > 1;
 
            var bars = new List<BaseData>();
 
            if (isDailyAndMultipleTimeZone)
            {
                bars.AddRange(slices
                    .GroupBy(x => x.Time.Date)
                    .Where(x => x.Sum(k => k.Count) == symbols.Length)
                    .SelectMany(x => x.SelectMany(y => y.Values)));
            }
            else
            {
                bars.AddRange(slices
                    .Where(x => x.Count == symbols.Length)
                    .SelectMany(x => x.Values));
            }
 
            return bars
                .GroupBy(x => x.Symbol)
                .Select(x =>
                {
                    var array = x.Select(b => Math.Log((double)b.Price)).ToArray();
                    if (array.Length > 1)
                    {
                        for (var i = array.Length - 1; i > 0; i--)
                        {
                            array[i] = array[i] - array[i - 1];
                        }
                        array[0] = array[1];
                        return array;
                    }
                    else
                    {
                        return new double[0];
                    }
                }).ToArray();
        }
    }
}