Python for Algorithmic Trading Cookbook

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Build Alpha Factors for Stock Portfolios

Professional traders often construct factor portfolios to target and exploit market inefficiencies, such as anomalies in value, size, or momentum, to generate better risk-adjusted returns. By systematically identifying and weighing securities based on these specific characteristics or factors, investors can create a portfolio that captures the desired exposures while minimizing unintended risks. Factors act as the fundamental building blocks of investing, being the persistent forces that influence returns across various asset classes. A trading edge is a consistent, non-random inefficiency in the market that can be exploited for profit. Factors are the inefficiencies that drive asset prices and form ...