We've taken a strategy from our Strategy Library, the Fundamental Factor Long Short Strategy, and implemented it as a Framework Algorithm with a custom Alpha Model. Alpha Models provide a powerful framework for highly customized design, data manipulation, and insight generation, and we want to continue to demonstrate this here.

Briefly, the Fundamental Factor Long/Short strategy uses fundamental data as measures of value, quality, and momentum. It then ranks all the stocks in the Universe according to the factors and emits Up or Down Insights based on the perceived future direction of price movement.

The first step is to initialize all of the Models we want to use. To select the Equities we want to examine, we employ the FineFundamental Universe Selection Model, which will allow us to create quick Coarse/Fine Selection functions where we can perform some quick filtering. To best replicate the original strategy example, we employ an Equal Weighting Portfolio Construction Model and an Immediate Execution Model. Finally, we add our custom Alpha Model.

def Initialize(self): self.SetStartDate(2018, 1, 1) # Set Start Date self.SetCash(100000) # Set Strategy Cash ## Set execution model to mimic market orders self.SetExecution(ImmediateExecutionModel()) ## Set Portfolio Construction model to mimic initital algorithm weighting scheme self.SetPortfolioConstruction(EqualWeightingPortfolioConstructionModel()) ## Helper variables for universe selection and checking for conditions to update only at the ## beginning of each month self.num_coarse = 250 self.num_fine = 10 self.lastMonth = -1 self.symbols = None ## Coarse/Fine universe selection model self.UniverseSettings.Resolution = Resolution.Daily self.SetUniverseSelection(FineFundamentalUniverseSelectionModel(self.CoarseSelectionFunction, self.FineSelectionFunction, None, None)) ## Custom Alpha model where we can perform the trading logic and the filtering ## done based on Fundamental Data self.AddAlpha(FundamentalFactorAlphaModel(self.lastMonth, self.num_fine))

Once we've established all of the elements of the algorithm, we do some cursory filtering of our Universe, taking the top 250 Equities with the highest dollar volume to ensure liquidity and filter out the stocks without Fundamental Data with a non-negligible price.

def CoarseSelectionFunction(self, coarse): ## If not time to rebalance, keep the same universe if self.Time.month == self.lastMonth: return Universe.Unchanged ## Else reassign the month variable and filter self.lastMonth = self.Time.month ## Select only those with Fundamental Data and a sufficiently large price ## Sort by top dollar volume -- most liquid to least liquid selected = sorted([x for x in coarse if x.HasFundamentalData and x.Price > 5], key = lambda x: x.DollarVolume, reverse=True) return [i.Symbol for i in selected[:self.num_coarse]] def FineSelectionFunction(self, fine): ## Filter the fine data for equities with non-zero/non-null Value, ## 1-month Price Change, and Book Value per Share filtered_fine = [x.Symbol for x in fine if x.OperationRatios.OperationMargin.Value > 0 and x.ValuationRatios.PriceChange1M > 0 and x.ValuationRatios.BookValuePerShare > 0] return filtered_fine

Now that we have the large Universe to score, we perform the scoring inside the Alpha Model. The process is to make three sorted lists to store the stocks, and then use a dictionary to store the score information. For the dictionary, the keys are Symbols and the values are their scores. Finally, we sort the dictionary to get the final rank, and store the top 20 stocks to long in the list self.long and the bottom 20 stocks to short in the list self.short. Finally, we need to emit Insights based on whether we want to take a long or short position, which will inform our Portfolio Construction and Execution models. We first liquidate any securities we're currently invested in and then emit Up Insights for our selected long positions and Down Insights for our short positions.

class FundamentalFactorAlphaModel(AlphaModel): def __init__(self, num_fine): ## Initialize the various variables/helpers we'll need self.lastMonth = -1 self.longs = [] self.shorts = [] self.num_fine = num_fine def Update(self, algorithm, data): ## Return no insights if it's not the month to rebalance if algorithm.Time.month == self.lastMonth: return [] self.lastMonth = algorithm.Time.month ## Create empty list of insights insights = [] ## We will liquidate any securities we're still invested in that we don't want to hold a position ## for the next month for kvp in algorithm.Portfolio: holding = kvp.Value symbol = holding.Symbol if holding.Invested and symbol not in self.longs and symbol not in self.shorts: insights.append(Insight(symbol, timedelta(30), InsightType.Price, InsightDirection.Flat, None, None)) ## Emit Up (buy) Insights for our desired long positions for symbol in self.longs: insights.append(Insight(symbol, timedelta(30), InsightType.Price, InsightDirection.Up, 0.01, None)) ## Emit Down (sell) Insights for our desired short positions for symbol in self.shorts: insights.append(Insight(symbol, timedelta(30), InsightType.Price, InsightDirection.Down, 0.01, None)) return insights def OnSecuritiesChanged(self, algorithm, changes): ## Get the securities added = [x for x in changes.AddedSecurities] ## Perform filtering/sorting based on Value, Quality, and Momentum sortedByfactor1 = sorted(added, key=lambda x: x.Fundamentals.OperationRatios.OperationMargin.Value, reverse=True) sortedByfactor2 = sorted(added, key=lambda x: x.Fundamentals.ValuationRatios.PriceChange1M, reverse=True) sortedByfactor3 = sorted(added, key=lambda x: x.Fundamentals.ValuationRatios.BookValuePerShare, reverse=True) ## Create dictionary to store scores scores = {} ## Assign a score to each stock. for i,ele in enumerate(sortedByfactor1): rank1 = i rank2 = sortedByfactor2.index(ele) rank3 = sortedByfactor3.index(ele) scores[ele] = rank1*0.2 + rank2*0.4 + rank3*0.4 ## Sort the stocks by their scores sorted_stock = sorted(scores.items(), key=lambda d:d[1],reverse=False) sorted_symbol = [x[0] for x in sorted_stock] ## Sort the top stocks into the long_list and the bottom ones into the short_list self.longs = [x.Symbol for x in sorted_symbol[:self.num_fine]] self.shorts = [x.Symbol for x in sorted_symbol[-self.num_fine:]] algorithm.Log('Long: ' + ', '.join(sorted([x.Value for x in self.longs]))) algorithm.Log('Short: ' + ', '.join(sorted([x.Value for x in self.shorts])))

The backtest is attached below. Explore the code, create new ranking schemes, and tinker with Execution, Portfolio Construction, and Risk models!