Spot and Delivery Futures Arbitrage with ADF and Z-Score Signals
Summary
This prototype outlines a statistical arbitrage strategy for the price spread between spot assets and delivery futures. It proposes running an Augmented Dickey–Fuller stationarity test hourly and allowing trades only when the spread passes a p-value threshold. A Z-score then measures deviation from the spread’s historical mean: large positive deviations prompt buying spot and selling futures, while large negative deviations prompt the reverse. The intended exit is near the mean, with a dynamically adjusted target that accounts for realized entry prices.
The document details execution safeguards, including order-book midpoint checks, balance checks, paired limit orders, rollback attempts if a leg fails, and concurrent closing orders. It also lists stop-loss, delivery-date, holding-time, and cooldown rules. The provided source is truncated, and the document reports no backtest or live trading outcomes. Its custom ADF p-value approximation, fill assumptions, and hedge sizing need independent validation; stationarity and mean reversion can change over time, and execution costs can erase the spread opportunity.
Key ideas
- The proposed strategy trades deviations in the spread between spot and delivery futures.
- An ADF test screens spread history for stationarity before a pair is eligible to trade.
- Z-score direction determines which leg is bought and which is sold.
- Paired execution, rollback procedures, and delivery safeguards target operational risks.
- No performance evidence is reported, and both the test implementation and execution assumptions need validation.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.