Hands-On Machine Learning for Algorithmic Trading

Alpha content and quality

The signal strength required to justify the investment in an alternative dataset naturally depends on its costs, and alternative data prices vary widely. Data that scores social sentiment can be acquired for a few thousand dollars or less, while the cost of a dataset on comprehensive and timely credit card payments can cost several million per year.

We will explore in detail how to evaluate trading strategies driven by alternative data using historical data, so-called backtests, to estimate the amount of alpha contained in a dataset. In isolated cases, a dataset may contain sufficient alpha signal to drive a strategy on a standalone basis, but more typical is the combined use of various alternative and other sources ...