Extend LeastSquaresMovingAverage to accept a benchmark reference

Algorithm/QCAlgorithm.Indicators.cs

@@ -1364,6 +1364,27 @@ public LeastSquaresMovingAverage LSMA(Symbol symbol, int period, Resolution? res
             return leastSquaresMovingAverage;
         }
 
+        /// <summary>
+        /// Creates a Least Squares Moving Average indicator for the given target symbol in relation with
+        /// the reference used, that is, the regression line of the target prices on the reference prices.
+        /// The indicator will be automatically updated on the given resolution.
+        /// </summary>
+        /// <param name="target">The target symbol whose LSMA we want</param>
+        /// <param name="reference">The reference symbol to regress the target symbol on</param>
+        /// <param name="period">The period of the LSMA indicator</param>
+        /// <param name="resolution">The resolution</param>
+        /// <param name="selector">Selects a value from the BaseData to send into the indicator, if null defaults to casting the input value to a TradeBar</param>
+        /// <returns>The LeastSquaresMovingAverageWithReference indicator for the given parameters</returns>
+        [DocumentationAttribute(Indicators)]
+        public LeastSquaresMovingAverageWithReference LSMA(Symbol target, Symbol reference, int period, Resolution? resolution = null, Func<IBaseData, IBaseDataBar> selector = null)
+        {
+            var name = CreateIndicatorName(QuantConnect.Symbol.None, $"LSMA({period})", resolution);
+            var leastSquaresMovingAverage = new LeastSquaresMovingAverageWithReference(name, target, reference, period);
+            InitializeIndicator(leastSquaresMovingAverage, resolution, selector, target, reference);
+
+            return leastSquaresMovingAverage;
+        }
+
         /// <summary>
         /// Creates a new LinearWeightedMovingAverage indicator.  This indicator will linearly distribute
         /// the weights across the periods.

Indicators/LeastSquaresMovingAverageWithReference.cs

@@ -0,0 +1,122 @@
+/*
+ * 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 System;
+using System.Linq;
+using MathNet.Numerics;
+using QuantConnect.Data.Market;
+
+namespace QuantConnect.Indicators
+{
+    /// <summary>
+    /// The Least Squares Moving Average (LSMA) of a target in relation with a reference fits a least
+    /// squares regression line of the target close prices on the reference close prices over the given
+    /// period, instead of on the time index used by <see cref="LeastSquaresMovingAverage"/>. It then
+    /// returns the value the regression line takes for the most recent reference price, which is the
+    /// price the target is expected to have given where the reference is trading.
+    ///
+    /// It is common practice to use the SPX index as the reference, so that the indicator describes
+    /// the target price in terms of the overall market level.
+    ///
+    /// The indicator only updates when both assets have a price for a time step. When a bar is missing
+    /// for one of the assets, the indicator value fills forward to improve the accuracy of the indicator.
+    /// </summary>
+    public class LeastSquaresMovingAverageWithReference : DualSymbolIndicator<IBaseDataBar>
+    {
+        /// <summary>
+        /// The point where the regression line crosses the y-axis (target price axis)
+        /// </summary>
+        public IndicatorBase<IndicatorDataPoint> Intercept { get; }
+
+        /// <summary>
+        /// The regression line slope, the target price change per unit of reference price change
+        /// </summary>
+        public IndicatorBase<IndicatorDataPoint> Slope { get; }
+
+        /// <summary>
+        /// Creates a new LeastSquaresMovingAverageWithReference indicator with the specified name,
+        /// target, reference and period values
+        /// </summary>
+        /// <param name="name">The name of this indicator</param>
+        /// <param name="targetSymbol">The target symbol of this indicator</param>
+        /// <param name="referenceSymbol">The reference symbol of this indicator</param>
+        /// <param name="period">The period of this indicator</param>
+        public LeastSquaresMovingAverageWithReference(string name, Symbol targetSymbol, Symbol referenceSymbol, int period)
+            : base(name, targetSymbol, referenceSymbol, period)
+        {
+            // Assert the period is greater than one, otherwise the regression line can not be fitted
+            if (period < 2)
+            {
+                throw new ArgumentException($"Period parameter for LeastSquaresMovingAverageWithReference indicator must be greater than 1 but was {period}.");
+            }
+
+            Intercept = new Identity(name + "_Intercept");
+            Slope = new Identity(name + "_Slope");
+        }
+
+        /// <summary>
+        /// Creates a new LeastSquaresMovingAverageWithReference indicator with the specified target,
+        /// reference and period values
+        /// </summary>
+        /// <param name="targetSymbol">The target symbol of this indicator</param>
+        /// <param name="referenceSymbol">The reference symbol of this indicator</param>
+        /// <param name="period">The period of this indicator</param>
+        public LeastSquaresMovingAverageWithReference(Symbol targetSymbol, Symbol referenceSymbol, int period)
+            : this($"LSMA({period})", targetSymbol, referenceSymbol, period)
+        {
+        }
+
+        /// <summary>
+        /// Computes the value the regression line of the target on the reference takes for the
+        /// most recent reference price
+        /// </summary>
+        protected override decimal ComputeIndicator()
+        {
+            // Until both windows are full, the indicator returns the target price, like the LSMA does
+            if (!IsReady)
+            {
+                return TargetDataPoints[0].Close;
+            }
+
+            // Both windows only hold the data points of the time steps both symbols have a price for,
+            // so the target and the reference prices pair up by index
+            var referencePrices = ReferenceDataPoints.Select(x => (double)x.Close).ToArray();
+            var targetPrices = TargetDataPoints.Select(x => (double)x.Close).ToArray();
+            var (intercept, slope) = Fit.Line(x: referencePrices, y: targetPrices);
+
+            // The regression line is undefined when the reference price does not change over the period
+            if (intercept.IsNaNOrInfinity() || slope.IsNaNOrInfinity())
+            {
+                return TargetDataPoints[0].Close;
+            }
+
+            var endTime = TargetDataPoints[0].EndTime;
+            Intercept.Update(endTime, intercept.SafeDecimalCast());
+            Slope.Update(endTime, slope.SafeDecimalCast());
+
+            return Intercept.Current.Value + Slope.Current.Value * ReferenceDataPoints[0].Close;
+        }
+
+        /// <summary>
+        /// Resets this indicator and all sub-indicators (Intercept, Slope)
+        /// </summary>
+        public override void Reset()
+        {
+            Intercept.Reset();
+            Slope.Reset();
+            base.Reset();
+        }
+    }
+}

Tests/Algorithm/AlgorithmIndicatorsTests.cs

@@ -275,6 +275,62 @@ public void BetaCalculation()
             Assert.AreEqual(new DateTime(2013, 10, 10, 16, 0, 0), lastPoint.Current.EndTime);
         }
 
+        [Test]
+        public void LeastSquaresMovingAverageWithReferenceCalculation()
+        {
+            var period = 10;
+            var referenceSymbol = Symbol.Create("IBM", SecurityType.Equity, Market.USA);
+            var indicator = new LeastSquaresMovingAverageWithReference(_equity, referenceSymbol, period);
+            _algorithm.SetDateTime(new DateTime(2013, 10, 11));
+
+            // Fit the target closes on the reference closes of the last period time steps both symbols
+            // have a price for, using the ordinary least squares closed form
+            var targetCloses = new List<double>();
+            var referenceCloses = new List<double>();
+            foreach (var slice in _algorithm.History(new[] { _equity, referenceSymbol }, TimeSpan.FromDays(50), Resolution.Daily))
+            {
+                if (slice.Bars.ContainsKey(_equity) && slice.Bars.ContainsKey(referenceSymbol))
+                {
+                    targetCloses.Add((double)slice.Bars[_equity].Close);
+                    referenceCloses.Add((double)slice.Bars[referenceSymbol].Close);
+                }
+            }
+            var target = targetCloses.TakeLast(period).ToList();
+            var reference = referenceCloses.TakeLast(period).ToList();
+            var sumX = reference.Sum();
+            var sumY = target.Sum();
+            var expectedSlope = (period * reference.Zip(target, (x, y) => x * y).Sum() - sumX * sumY)
+                / (period * reference.Sum(x => x * x) - sumX * sumX);
+            var expectedIntercept = (sumY - expectedSlope * sumX) / period;
+            var expectedValue = expectedIntercept + expectedSlope * reference[^1];
+
+            var indicatorValues = _algorithm.IndicatorHistory(indicator, new[] { _equity, referenceSymbol }, TimeSpan.FromDays(50), Resolution.Daily);
+
+            Assert.AreEqual(expectedSlope, (double)indicator.Slope.Current.Value, 1e-6);
+            Assert.AreEqual(expectedIntercept, (double)indicator.Intercept.Current.Value, 1e-6);
+            Assert.AreEqual(expectedValue, (double)indicator.Current.Value, 1e-6);
+            Assert.AreEqual(new DateTime(2013, 10, 10, 16, 0, 0), indicator.Current.EndTime);
+
+            // The indicator history is taken on the first of the two updates each time step gets, so
+            // its last row holds the value the indicator had before the last pair of prices was fit
+            var lastPoint = indicatorValues.Last();
+            Assert.AreEqual(new DateTime(2013, 10, 10, 16, 0, 0), lastPoint.Current.EndTime);
+            Assert.AreEqual(indicator.Previous.Value, lastPoint.Current.Value);
+        }
+
+        [Test]
+        public void LeastSquaresMovingAverageWithReferenceIsWarmedUpByTheAlgorithm()
+        {
+            var referenceSymbol = _algorithm.AddEquity("IBM").Symbol;
+
+            var indicator = _algorithm.LSMA(_equity, referenceSymbol, 10, Resolution.Daily);
+
+            Assert.AreEqual("LSMA(10,day)", indicator.Name);
+            Assert.IsTrue(indicator.IsReady);
+            Assert.AreNotEqual(0m, indicator.Current.Value);
+            Assert.AreNotEqual(0m, indicator.Slope.Current.Value);
+        }
+
         [TestCase(Language.Python)]
         [TestCase(Language.CSharp)]
         public void IndicatorsPassingHistory(Language language)