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Lecture 37

Factor Analysis

Introduction

Building portfolios of alpha factors allows us to more carefully monitor and analyze the source and consistency of our returns. In this lecture we cover the basics of determining whether an alpha factor is suitable for a long-short equity algorithm by analyzing it using Alphalens, an open source package that we developed specifically for this purpose. We discuss the various graphs and statistics that compose an Alphalens tear sheet and provide background on how they indicate factor quality.

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