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Uncorrelate those models - Seattle/Portland meetup talk

Something that I found myself running into when modeling is that sometimes my explanatory variables were explaining the same thing, and appeared to be correlated over time. I figured that I wasn't the only person running into this problem, aware of it or not, and decided to do a little research into it. I'll post a notebook shortly with the code for some of the methods I used. Hopefully these backtests demonstrate the power of adding uncorrelated factors to your models.

Here is the code for the backtests that I talked about during the Seattle and Portland meetups. The final model does require access to the paid Sentdex dataset though the theory should still hold with the free data. Note that these algos are for demonstration/education purpose so commission and slippage have been disabled.

2 Correlated Factors

Quality, Value

Clone Algorithm
26
Loading...
Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
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: 5751d06822afdd0f9b5fb938
There was a runtime error.
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5 responses

2 Uncorrelated Factors

Value, Momentum

Clone Algorithm
26
Loading...
Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
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: 5751cea7ae26dd0f8cd2c730
There was a runtime error.

3 Uncorrelated Factors + new datasource

Value, Momentum, Sentiment

As mentioned above this algo uses the paid version of the Sentdex data, though you can easily run the algo with the free version. Just change the import statement from

from quantopian.pipeline.data.sentdex import sentiment as sentdex  

to

from quantopian.pipeline.data.sentdex import sentiment_free as sentdex  

also don't forget to adjust the date ranges if using the free dataset.

Clone Algorithm
26
Loading...
Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
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: 5751cc2a22afdd0f9b5fb8b8
There was a runtime error.

James,
Nice talk in Portland...thanks!
Looking forward to your notebook posting. I found that very interesting.
alan

Looking forward to learning from this. Thanks for sharing.

Hey All - really dropped the ball on this one! Sorry for the delay I spent most of the summer heads down on Alphalens. Here is the NB for the Seattle and Portland talks it is pretty slow to execute (lots of permutations and correlations) so it may be better to just view the preview, otherwise enjoy.

And I'll be in Seattle with Max on October 10th (same venue) for another talk!

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