The answer to your question actually depends on the context in which you are working. By the sounds of it, you are asking specifically about
get_clean_factor_and_forward_returns in Alphalens. If that's the case, you can find the definition of this function in the Alphalens repository in GitHub. Note that the function takes pricing data as input, so you can choose whether to provide close prices or something else (open prices are recommended in the Alphalens Tutorial on Q).
There is also a built-in
Returns factor in the Pipeline API. The
Returns factor is defined in the API reference as follows: "Calculates the percent change in close price over the given
Generally speaking, a return on day N should not include any information from day N+1 to avoid lookahead bias. In the case of the
Returns factor in the Pipeline API, a
Returns(window_length=2) will actually get you the relative difference between the previous close and the close before that. This is because pipelines are expected to be run before market open, so those are the two most recently known close prices.
Again - the answer very much depends on the context in which you are answering. Let me know if this answer is helpful or if there's another context you are wondering about.
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