Datasets on Quantopian cover tens of thousands of equities traded on a number of different exchanges and markets. Before proceeding to alpha factor discovery, you will need to pare this set of tens of thousands assets per day down to an appropriate set of tradable securities -- your "trading universe".
There are a couple of reasons why it is desirable to narrow your trading universe:
- Practical reasons. Certain equities are difficult, expensive, or simply impossible to trade; you will likely want to remove these securities from your universe.
- Effective comparison. Cross-sectional equity strategies aim to predict the relative value of equities. However, it doesn't make sense to compare value across equities that are very different from each other. Ideally, there is some degree of uniformity in the characteristics of the assets being evaluated.
In selecting the universe, you must be mindful of your underlying investment thesis. Consider two examples as an illustration. If you are pursuing a strategy with a thesis based on the information content of overnight versus intraday stock returns, you probably want to screen out ADRs, because their prices depend on movements at different times. It is not logically consistent to apply a thesis that relies on investor behavior seen through US exchange prices of an ADR when information has diffused into the local share underlying the ADR in another time zone. As a second example, if you are pursuing a strategy based on the accruals anomaly, you must be sure to screen out stocks to which these metrics cannot be appropriately applied (in this case, bank stocks).
On Quantopian, you should use pipeline for dynamic stock selection. Pipeline filters allow you to narrow your trading universe by screening out certain categories of stocks (illiquid stocks, stocks from some exchanges, stocks lacking data, and much more).
Within pipeline, the QTradableStocksUS is an out-of-the-box trading universe that you can use to screen for liquid US stocks. The QTradableStocksUS uses pricing, volume, and fundamental data to define a dynamic tradable universe each day. The QTradableStocksUS is a suitable base universe for high capacity, US equity strategies.