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Help - Negative Cumulative Returns in Alphalens, not sure why

My top group goes up, my bottom group goes down. Both do so relatively consistently (in this short period of time at least). But my cumulative returns are negative, by a lot too.

Can someone explain to me how this would be possible on alphalens?

4 responses

Just invert the factor values, that is pass -myfactor (note the minus sign) to Alphalens. It's hard to say what's going on without a NB

Here's a simple notebook that recreates the same problem. I passed a negative sign to Alphalens and that made the cumulative returns positive, but the quantile-wise returns also flipped. I am confused about why they don't match up.

I substituted ROIC with a different simple factor that I know is positive in this time period from previous tests, and it behaves as it normally would.

Loading notebook preview...

I don't have the time to check what's going on now, but the main difference between the two plots is that Cumulative Return by Quantile uses equal weighting, so each security weighs the same, while Factor Weighted Long/Short Portfolio Cumulative Return plot weighs the security by factor value. This is relevant because in quantile 2 the spread between min and max values is huge (you can see that in the Quantile Statistics table). So I wonder if there is a security with such a big factor value that concentrate in itself most of the weight of quantile 2.

Beautiful. I ranked them instead of using the raw ROIC numbers and it turned out perfect. Once again, thanks for your help!