How to Combine a Billion Alphas

Zura Kakushadze and Willie Yu

Papers from arXiv.org

Abstract: We give an explicit algorithm and source code for computing optimal weights for combining a large number N of alphas. This algorithm does not cost O(N^3) or even O(N^2) operations but is much cheaper, in fact, the number of required operations scales linearly with N. We discuss how in the absence of binary or quasi-binary clustering of alphas, which is not observed in practice, the optimization problem simplifies when N is large. Our algorithm does not require computing principal components or inverting large matrices, nor does it require iterations. The number of risk factors it employs, which typically is limited by the number of historical observations, can be sizably enlarged via using position data for the underlying tradables.

Date: 2016-03, Revised 2016-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Asset Management 18(1) (2017) 64-80

Downloads: (external link)
http://arxiv.org/pdf/1603.05937 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1603.05937

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().