What is the difference between replication and arbitrage?

Replication means building one position that has the same payoff as another position. Arbitrage means exploiting a price difference between equivalent payoffs.

That means replication can exist without arbitrage. If a derivative costs exactly the same as its replication portfolio, the relationship is fair under no-arbitrage pricing. There is no free profit; there is just a pricing check.

Arbitrage appears only when the market price and replication cost differ enough to let you buy the cheaper exposure and sell the expensive exposure while locking in the difference.