Ideally when constructing an algorithm our factors generate alpha on both the long and short side, but sometimes the reality is that this is not the case.
Lets say I have an alpha factor where I find that going long the top 50 stocks generates alpha but find no discernible alpha in going short any decile of that same signal. In cases like that I've typically just thrown the entirety of the remainder of the tradable universe equally-weighted on the short side and let the optimizer figure out how to properly balance/hedge the portfolio. The downside to this is that the optimizer will be just as inclined to adjust the weights on the alpha signal side of the portfolio in order to reach a hedged symbiosis, which is going to be counter-productive. We'd want only the hedge side to be adjusted, not the signal side.
Does anybody have any ideas or techniques for how to accomplish this? -- to construct a perfect short hedge against a long portfolio without disturbing the long portfolio (or visa versa)?
(Ignoring that obvious answer is to find separate signals that generate alpha for the long and short sides respectively and whose holding periods can be matched. This is easier said that done.)