10.3 The GRS Test: Your Alpha Is Probably a Missing Factor
Alpha is the gap between what a portfolio earned and what your model predicts. The GRS test grades all those gaps at once, and the usual verdict is blunt: you are missing a factor.
Independent research on systematic & quantitative trading
Aligrithm is an independent research publication on systematic trading, quantitative research, market microstructure, and adaptive systems. Long-form essays, code notebooks, and architecture breakdowns across eight pillars, built for traders who care more about how markets behave than about hype.
More about the publication →The ten pillars
Read in order. Each pillar walks you out of one trap with one new ability. The newest article is the worst place to begin.
- 1 The Scientific Trader Rebuild what you accept as evidence. Every rule becomes a hypothesis, every backtest an experiment you can falsify. 26
- 2 Indicator Engineering The input decides the ceiling. Build features with measurable properties that survive the tests. 82
- 3 Robust Systems Lab A strategy is not robust for surviving one friendly backtest. Here it survives hostile testing. 37
- 4 Market Structure Notes The same rule is edge on one instrument and noise on another. Read a market's personality before you deploy. 70
- 5 Microstructure Alpha The order-book layer. The same signal is worthless as taker flow and valuable as a maker improvement. 45
- 6 Portfolio Construction & System Death A real signal still loses if the size and correlations are wrong. Sizing is part of the signal. 47
- 7 Python Research Notebooks Stop taking results on faith. Re-run every claim on your own data and see whether it holds. 3
- 8 Physics, Geometry & Event-Driven Markets The frontier. Markets as event-driven nonlinear systems, not fixed-time price series. Read it last. 8
- 9 Prediction Market Arbitrage The cleanest money on Polymarket and Kalshi comes from prices that contradict each other, not prices that turn out wrong. 33
- 10 Cross-Sectional & Factor Investing Stop timing one asset. Rank the whole cross-section and let relative value, not direction, carry the return. 15
Latest articles
10.4 Fama-MacBeth Two-Pass and the Shanken Correction Nobody Applies
Fama-MacBeth gets you the factor premium in two passes, even for untradable factors. But the second pass uses estimated betas, so skipping the Shanken correction inflates every t-stat.
10.2 Portfolio Sorts From Scratch: Deciles, Monotonicity, and the Long-Short Spread
You never see factor exposure. So you rank stocks on a proxy, go long the top decile and short the bottom, and test the spread. Deciles, a t-stat, and a monotonicity check, from scratch.
10.1 What a Factor Actually Is: α + βλ, and Why the Market Is Factor #1
Factor investing runs on one equation: expected return equals alpha plus beta times lambda. Beta is exposure, lambda is the premium, alpha is the leftover. The market is factor #1, and CAPM fails on its own.
3.37 Collinearity in Parameter Sweeps: Plateaus, Not Peaks
Sweeping 50/200, 60/210, 70/220 holds the ratio fixed: you test one concept along a line, not the space. That flat sweep is a thin ridge, not a plateau. Fix one parameter, vary the other, then reverse.
9.32 25:1: How Five "Diversified" Election Bets Blow Up on One Shock
Five "diversified" state-election arb positions share one national driver. Correlation 0.75 hides tail dependence 0.90, so a single shock turns a ±$0.10 book into a -$2.50 loss: a 25:1 ratio, not 5:1.
9.31 Prediction Markets Live on Boundaries
Prediction-market prices cluster near 0 and 1, and that is exactly where the log-scoring arbitrage math breaks. Worse, it can fail silently: no crash, just a wrong trade with a confident profit number.
9.30 The Term Structure of Strategy: Momentum Far Out, Reversion Near Resolution
A prediction market resolves to 0 or 1 on a fixed date, and that wall flips the strategy. More than 30 days out prices trend, so momentum pays. Inside 7 days prices overreact to noise, so reversion pays.
9.29 Fast Fills Are Bad Fills: The Numbers
Fill quality is the midpoint minus your execution price over the spread, measured after the fill. Market orders average -0.72, fast limits -0.31, slow limits +0.43. Speed and fill quality move opposite.
9.28 Adverse Selection Is Adverse Selection: Porting Fast-Fills-Are-Bad-Fills to FX and Futures
Fill quality, the maker's profit equation, and the markout test move from a Polymarket CLOB to an FX or futures book unchanged. The payoff structure differs; adverse selection is adverse selection.
9.27 CVaR Sizing: One Tool, Two Markets
The CVaR-constrained portfolio QP that sizes Polymarket election arbs is the same machine that sizes a futures book. Different loss shapes, one tail metric, one fix for the correlation that spikes in a crisis.
9.26 Kelly in Prediction Markets vs a Prop Challenge: Same Formula, Opposite Geometry
Kelly's formula is identical in a prediction market and a prop challenge, but one optimizes long-run growth and the other a first-passage race to a target before an absorbing trapdoor. Opposite geometry, opposite sizes.