WorldQuant
WorldQuant is a quantitative investment management firm founded in 2007 and currently has
over 700 employees spread across 23 offices in 13 countries. WorldQuant develops and
deploys systematic financial strategies across a variety of asset classes in global markets,
utilizing a proprietary research platform and risk management process.
An Alpha is a mathematical model that seeks to predict the performance of financial
instruments.
An Alpha is a mathematical model that assigns weights to different stocks based on data-driven
expressions.
Correlation measures the uniqueness of an Alpha.
Delay
Delay is the assumption of when we can trade stock once we decide on a position.
Assume that you are looking at the data today before market close and you decide that you
want to buy stock. We can choose an aggressive approach and trade stock in the time left till
market close. In this case, the position is based on data available on the same day (today). This
is called Delay 0 simulation.
Alternatively, we could choose a conservative trading strategy and trade stock the next
day(tomorrow). Then the position is achieved tomorrow and it is based on today’s data. In this
case, there is a lag of 1 day. This is called Delay 1 simulation. In expression language, delay is
applied automatically and you do not have to bother about it.
Decay : - Sets input data equal to a linearly decreasing weighted average of that data over
the last selected number of days.
This performs a linear decay function over the past n days by combining today’s value with
previous days’ decayed value.
5. Fitness Test (for Alpha)
Definition: A method to evaluate the effectiveness and robustness of an alpha model.
Purpose:
o Ensures that the model performs well under different market conditions.
o Helps determine whether the strategy is viable for real-world trading.
Liquidity describes the ease with which an asset or security can be bought or sold in the market
without affecting its price significantly
Neutralization helps to reduce the risk by making strategies long-short market neutral.
Long-short neutral strategy is commonly used by hedge funds globally. This involves
allocating an equal dollar amount to long positions and short positions. This type of strategy
can then profit from a change in the spread between stocks. You have also minimized exposure to
the market in general, i.e. the ability of this strategy to make a profit is not directly tied to the
direction of the market (either up or down)
Matix: Basic type of field which has just one value of every date and instrument. There is no
special syntax for using this in simulation. Some examples of matrix fields are close, returns,
cap.
NaN stands for 'Not a Number'. It is used to indicate results of ‘invalid’ operations like division by
zero or if some data is unavailable.
Pasteurization replaces input values with NaN (pasteurizes) for instruments not in the Alpha
universe. When Pasteurize = ‘On’, inputs will be converted to NaN for instruments not in the
universe selected in Simulation Settings. When Pasteurize = ‘Off’, this operation does not
happen and all available inputs are used.
Regression is a statistical measure to determine the strength of the relationship between two or
more variables and forecast their future value.
4. Sharpe Ratio
Definition: A metric that evaluates the risk-adjusted return of an investment.
Formula: Sharpe Ratio=Return on
Investment−Risk- Free RateStandard Deviation of Excess Returns\text{Sharpe Ratio} = \
frac{\text{Return on Investment} -
\text{Risk-Free Rate}}{\text{Standard Deviation of
Excess Returns}}Sharpe Ratio=Standard Deviation of Excess
ReturnsReturn on Investment−Risk-Free Rate
Interpretation:
o A higher Sharpe Ratio means the investment yields better returns relative to risk.
o A low Sharpe Ratio suggests higher risk with lower returns.
Truncation
The maximum weight for each stock in the overall portfolio. When set to 0, there is no restriction. It
aims to guard from being too exposed to movements in individual stocks. The recommended
setting is between 0.05 and 0.1 (entailing 5-10%).
Turnover
Average measure of daily trading activity: turnover signifies how often an Alpha simulates trades. It can
be defined as the ratio of value traded to book size
"US: TOP3000" represents the top 3000 most liquid stocks in the US market.
Unit Handling
Unit Handling option allows raising a warning when incompatible units are used in an
operator. This warning appears if expression uses data fields that are incompatible, for example, a
warning will be shown for an attempt to add price to volume.
Let's say you have an Alpha signal which gives weight to all the instruments (according to your
Alpha idea) and applies industry neutralization. By industry neutralizing, BRAIN platform
separates each industry and reduces the average of the weights from all the instruments in that
industry. You can do the same for sub-industry too.
