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OPTIMIZE Help, Only Buying a Few Stocks

I am trying to run an Optimization for stocks with the highest Alpha. My goal is to put more weight on stocks with higher alpha, and less weight on stocks with less alpha. It only will hold 2 or 3 positions, although my pipeline has a lot of stocks. I am trying to long only with the highest alpha, but it will only hold a few positions. I am assuming it is putting all the weight on stocks that had the highest alpha.

How can I have more stocks in the basket?



Clone Algorithm
Backtest from to with initial capital
Total Returns
Max Drawdown
Benchmark Returns
Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 594d7b85ba88654d66c9f8af
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1 response

Hi Eric,

Your guess is right about all the weight going into the stocks with the highest alpha. Under the hood, the MaximizeAlpha objective will return the optimal portfolio that maximizes alpha within the provided constraints. If no constraints are provided, you can expect it to try to take a single position worth the whole portfolio value because technically, that should have the most alpha. Adding constraints will prevent this behavior and allow you to place more bets with less weight. In the code you shared, you set a maximum position concentration of 50% so that's why you're seeing such a low number of names being traded. If you want to increase the diversity (generally a good idea!), you should try enforcing a stricter position constraint, or add other constraints like market neutrality or sector neutrality. I shared an algo that does something like this recently.

I hope this helps.


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