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?
Thanks,
Eric
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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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.
In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.
