What is an easy way to increase the alpha of a strategy?
Understand the Problem
The question is asking for strategies to increase the alpha of a trading or investment strategy. Alpha is a measure of performance on a risk-adjusted basis, so the inquiry seeks methods to enhance this performance metric.
Answer
Separate long and short directions and optimize each.
Separate the long and short directions from the underlying logic and optimize for them separately.
Answer for screen readers
Separate the long and short directions from the underlying logic and optimize for them separately.
More Information
Separating the long and short components of a strategy allows for tailored optimization and enhances alpha by addressing specific market conditions.
Tips
Avoid improving drawdown when trying to increase alpha; focus on market-timing aspects and specific trade strategies.
Sources
- Adding Alpha Without Adding Risk - Investopedia - investopedia.com
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