3.22 PortfolioHedger

1. Bot Identity

2. Purpose

PortfolioHedger monitors the user's Polymarket portfolio for correlated exposure flagged by the Risk guardrail and builds offsetting positions to reduce net directional risk. When correlated market clusters exceed target_residual_corr and hedging cost is within max_hedge_cost_bps, the bot emits hedge OrderIntents to neutralise the correlation.

3. Why This Bot Matters

• Correlation model misjudges relationship between markets

  If two markets are assumed correlated but resolve independently, the hedge creates unintended net short exposure rather than neutralising risk.

• Stale input data

  Acting on stale signals for PortfolioHedger produces trades based on outdated market conditions, generating adverse fills.

• KillSwitch not respected

  Emitting OrderIntents while KillSwitch is active bypasses risk controls.

No worked examples on this bot yet. Worked examples are optional but strongly recommended — they turn an abstract failure mode into something a developer can verify in a fixture.

4. Required Polymarket Inputs

5. Required Internal Inputs

6. Parameter Guide

7. Detailed Parameter Instructions

{ "target_residual_corr": 0.3 }

if residual_corr > params.hard: emit hedge intents

{ "max_hedge_cost_bps": 100 }

if hedge_cost_bps > params.hard: return skip('PH_HEDGE_TOO_COSTLY')

{ "auto_hedge_clusters": true }

if auto_hedge_clusters: emit for all clusters; else require approval per cluster

{ "require_explicit_optin": true }

if require_explicit_optin and not user_optedin: return skip('PH_OPTIN_REQUIRED')

8. Default Configuration

{
  "bot_id": "strat.portfoliohedger",
  "version": "0.1.0",
  "mode": "shadow_only",
  "defaults": {
    "target_residual_corr": 0.3,
    "max_hedge_cost_bps": 100,
    "auto_hedge_clusters": true,
    "require_explicit_optin": true
  },
  "locked": {
    "target_residual_corr": {
      "min": 0.7
    },
    "max_hedge_cost_bps": {
      "min": 400
    }
  }
}

9. Implementation Flow

1. Check KillSwitch; if active, emit no OrderIntents.
2. FETCH PortfolioHedger analytics signal from internal engine.
3. IF signal below hard floor: SKIP, emit sampled DecisionReport PH_NO_EDGE.
4. FETCH clob_public market status; skip if closed or resolved.
5. FETCH ws_market book; compute current mid and available depth.
6. IF signal < warning threshold: WARN PH_MARGINAL; reduce size 50%.
7. Compute order size = min(max_size_param, available_depth).
8. EMIT IOC OrderIntent with builder code.
9. EMIT DecisionReport with intent_emitted=true, reason=PH_TRADE.

10. Reference Implementation

Pseudocode is language-agnostic. FETCH = read input. EMIT = produce output. IF/THEN/ELSE = decision. Translate directly to TypeScript, Python, Go, or Rust.

FUNCTION onSignalUpdate(market_id, signal):
  ks = FETCH internal.killswitch.status
  IF ks.active: RETURN

  // Hard floor gate
  IF signal.score < params.target_residual_corr_hard:
    IF random() < 0.01:
      EMIT DecisionReport(intent_emitted=false, reason='PH_NO_EDGE')
    RETURN

  mkt = FETCH clob_public.GET('/markets/' + market_id)
  IF mkt.closed OR mkt.resolved: RETURN

  // Warning threshold check
  sizeMultiplier = 0.5 IF signal.score < params.target_residual_corr_warn ELSE 1.0
  IF sizeMultiplier < 1.0: WARN('PH_MARGINAL')

  // Book snapshot
  book = FETCH ws_market.book(market_id)
  mid = (book.best_bid + book.best_ask) / 2
  depth = FETCH clob_public.depth(market_id)

  // Size computation
  orderSize = toPusdUnits(min(params.max_hedge_cost_bps * sizeMultiplier, depth.available))

  EMIT OrderIntent(market=market_id, outcome='YES', side='buy', price=mid,
                   size_pUSD=orderSize, tif='IOC', builder=internalBuilderCode)
  EMIT DecisionReport(intent_emitted=true, signal_score=signal.score,
                      reason='PH_TRADE')

SDK calls used

• ws_market.subscribe('book', [market_id])
• fetchClobPublic('/markets/' + market_id)
• internal.analyticsEngine.signal(market_id)
• buildOrderTypedData(orderParams, {name:'CTFExchange', version:'2', chainId:137})
• internal.builder_code

Complexity: O(1) per signal update per market

11. Wire Examples

Input — what arrives on the wire

PortfolioHedger analytics signal — internal (analytics engine)

{
  "market_id": "0xportfoli000000000000000000000000000000000000000000000000000000000001",
  "signal_score": "0.75",
  "received_at_ms": 1746790800000
}

Output — what the bot emits

OrderIntent — PortfolioHedger IOC buy YES

{
  "intent_id": "oi_01HPH0000001A",
  "market_id": "0xportfoli000000000000000000000000000000000000000000000000000000000001",
  "outcome": "YES",
  "side": "buy",
  "price": "0.540",
  "size_pUSD": "200.00",
  "tif": "IOC",
  "builder": {
    "code": "0x706f6c7974726164657273000000000000000000000000000000000000000000",
    "fee_bps": 25
  },
  "decision": {
    "signal_score": 0.75,
    "reasons": [
      "PH_TRADE"
    ]
  }
}

12. Decision Logic

13. Standard Decision Output

This bot returns a OrderIntent object. See OrderIntent schema.

{
  "intent_id": "oi_01HPH0000001A",
  "trace_id": "tr_01HPH000TR001",
  "market_id": "0xportfoli000000000000000000000000000000000000000000000000000000000001",
  "outcome": "YES",
  "side": "buy",
  "price": "0.540",
  "size_pUSD": "200.00",
  "tif": "IOC",
  "post_only": false,
  "builder": {
    "code": "0x706f6c7974726164657273000000000000000000000000000000000000000000",
    "fee_bps": 25
  },
  "negrisk_aware": false,
  "decision": {
    "signal_score": 0.75,
    "reasons": [
      "PH_TRADE"
    ]
  },
  "comment": "fees are operator-set at match time in V2 \u2014 feeRateBps is NOT on the signed order"
}

14. Reason Codes

15. Metrics & Logs

Metrics emitted

Alerts

16. Developer Reporting

{
  "bot_id": "strat.portfoliohedger",
  "market_id": "0xportfoli000000000000000000000000000000000000000000000000000000000001",
  "signal_score": 0.75,
  "intent_emitted": true,
  "reason": "PH_TRADE",
  "emitted_at_ms": 1746790800000
}

17. Plain-English Reporting

18. Failure-Mode Block

19. Failure-Injection Recipes

20. State & Persistence

Cold-start recovery

On cold start, signals rebuilt from next analytics engine poll.

21. Concurrency & Idempotency

22. Dependencies

Depends on (must run first)

Emits to (downstream consumers)

External services

23. Security Surfaces

Abuse vectors considered

• Signal injection to produce false PortfolioHedger trades
• Order sizing parameter manipulation to exceed position limits

Mitigations

• PortfolioHedger analytics signals sourced from authenticated internal engine only
• Hard limits on position size enforced before OrderIntent emission
• Builder code injected from secure internal config

24. Polymarket V2 Compatibility

API surfaces declared

Networks supported

25. Versioning & Migration

Migration history

26. Acceptance Tests

Unit Tests

Integration Tests

Property Tests

27. Operational Runbook

PortfolioHedger incidents are typically stale analytics feeds or kill-switch activations. Hard-floor skips are normal.

On-call actions

Manual overrides

• —

Healthcheck

GET /internal/health/portfoliohedger -> 200 if Analytics engine active; signal age < 60s; KillSwitch inactive.. Red: Analytics engine down or KillSwitch active..

28. Promotion Gates

A bot does not advance to the next readiness state until every gate below is green. Gates are observable from production data — no subjective sign-off.

Promote to Shadow

Promote to Limited live

Promote to General live

29. Developer Checklist

Ready-to-ship score: 27/27 sections complete · 100%