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Found Alpha Value - Next Steps?

Hi! I'm relatively new to the platform, and I've been playing around with alphalens. I finally found an alpha signal that I'd like to pursue, and based on the graphs, my cumulative long/short return for a 1D period looks promising.

Does this mean that I should just rebalance every day? I tried doing that and received worse results than the graph.

Basically my question is, how does alphalens compute the 1D returns? I'm basically just trying to mimic these returns that I see on the graph in my backtest.

Thanks!

3 responses

I looked in the alphalens source code and it seems to target weights based on relative factor value. Can anyone confirm this?

Does this mean that I should just rebalance every day?

Possibly. I would also look at some of the other statistics from AL, like mean IC for 1D, 5D, etc.

I tried doing that and received worse results than the graph.

In the backtester you mean? If so, then the signal may not be strong enough to survive trading costs (slippage mostly). Maybe also have a look at the Alphalens Tutorial.

I looked in the alphalens source code and it seems to target weights
based on relative factor value. Can anyone confirm this?

That's my understanding as well.

Hi Joakim, thanks for responding!

I've been using the maximize alpha function this entire time, but I think I'm going to try to mimic alphalens by using target weights based on the strength of each factor. I'll see if that gives me any more promising results. If not, maybe I'll try to find a better alpha value.

I'll probably update the thread once I get target weights fully functional.