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Asif Noor – Modern Systematic Macro (S6E9)

Flirting with Models

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How to Normalize and Standardize Your Risk Targets

When you talk about alpha signals across different sources, one of the problems you run into is that those alpha signals can have different units or very different magnitudes. How do you think about normalizing them so that they are cross comparable without necessarily losing valuable information? Yeah, so this is a challenge when you move away from building pure RV strategies, pure RV portfolios, do portfolios that have some directionality. So, for the momentum or the trend or the directionality bit of the portfolio, we do allow a little bit of flexibility in terms of risk targeting.

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