Building Formulaic Alphas¶

Introduction¶

In quantitative trading practice, designing novel factors that can explain and predict future asset returns are of vital importance to the profitability of a strategy. Such factors are usually called alpha factors, or alphas in short.

A formulaic alpha, as the name suggests, is a kind of alpha that can be presented as a formula or a mathematical expression.

Building Formulaic Alphas in `Qlib`¶

In Qlib, users can easily build formulaic alphas.

Example¶

MACD, short for moving average convergence/divergence, is a formulaic alpha used in technical analysis of stock prices. It is designed to reveal changes in the strength, direction, momentum, and duration of a trend in a stock’s price.

MACD can be presented as the following formula:

\[MACD = 2\times (DIF-DEA)\]

Note

DIF means Differential value, which is 12-period EMA minus 26-period EMA.

\[DIF = \frac{EMA(CLOSE, 12) - EMA(CLOSE, 26)}{CLOSE}\]

`DEA`means a 9-period EMA of the DIF.

\[DEA = \frac{EMA(DIF, 9)}{CLOSE}\]

Users can use Data Handler to build formulaic alphas MACD in qlib:

Note

Users need to initialize Qlib with qlib.init first. Please refer to initialization.

>> from qlib.data.dataset.handler import QLibDataHandler
>> MACD_EXP = '(EMA($close, 12) - EMA($close, 26))/$close - EMA((EMA($close, 12) - EMA($close, 26))/$close, 9)/$close'
>> fields = [MACD_EXP] # MACD
>> names = ['MACD']
>> labels = ['$close'] # label
>> label_names = ['LABEL']
>> data_handler = QLibDataHandler(start_date='2010-01-01', end_date='2017-12-31', fields=fields, names=names, labels=labels, label_names=label_names)
>> TRAINER_CONFIG = {
..     "train_start_date": "2007-01-01",
..     "train_end_date": "2014-12-31",
..     "validate_start_date": "2015-01-01",
..     "validate_end_date": "2016-12-31",
..  "test_start_date": "2017-01-01",
..  "test_end_date": "2020-08-01",
.. }
>> feature_train, label_train, feature_validate, label_validate, feature_test, label_test = data_handler.get_split_data(**TRAINER_CONFIG)
>> print(feature_train, label_train)
                        MACD
instrument  datetime
SH600000    2010-01-04 -0.008625
            2010-01-05 -0.007234
            2010-01-06 -0.007693
            2010-01-07 -0.009633
            2010-01-08 -0.009891
...                         ...
SZ300251    2014-12-25  0.043072
            2014-12-26  0.041345
            2014-12-29  0.042733
            2014-12-30  0.042066
            2014-12-31  0.036299

[322025 rows x 1 columns]
                        LABEL
instrument  datetime
SH600000    2010-01-04  4.260015
            2010-01-05  4.292182
            2010-01-06  4.207747
            2010-01-07  4.113258
            2010-01-08  4.159496
...                         ...
SZ300251    2014-12-25  4.343212
            2014-12-26  4.470587
            2014-12-29  4.762474
            2014-12-30  4.369748
            2014-12-31  4.182222

[322025 rows x 1 columns]

Reference¶

To learn more about Data Handler, please refer to Data Handler

To learn more about Data API, please refer to Data API

Building Formulaic Alphas¶

Introduction¶