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Alpha Concentration by Sector
Peter Harrington
posted

I recently heard a fund manager asked why he focused on the Technology sector. He replied that there was a study done showing that the alpha concentration was the highest in the Technology sector. I wanted to verify if this was true, so I conducted my own study using the Quantopian data. After looking at the data I determined that there was higher alpha in certain sectors but Technology was not the highest. Although Technology did improve for longer holding times. The second finding was that the advantage that certain sectors have appears to be relatively stationary. I hope you find these results useful.

Feedback is welcome and appreciated.

A detailed explanation of the method is included inside the notebook along with all the relevant code.

2 responses
Viridian Hawk

Interesting line of thought!

I would borrow the concept from physics ("potential energy") and call this "potential alpha." Now the pertinent question is how to release it into kinetic alpha.

Viridian Hawk

What about instead of the spread between top and bottom decile returns, measuring the spread between top and bottom decile alpha (asset_returns - market_returns * beta)?

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