Dear Consultant,

WorldQuant is now in the process of inspecting if their consultants create alphas by themselves
or do they copy from someone or somewhere. Hence, they are calling each consultant over the
phone and they ask basic questions like “What is an alpha?”, “Which dataset do you use?”, etc.
In case someone doesn’t know the answer, they close the account.

In this document, you will learn the complete strategy we use to create an alpha. And thus, you
can confidently pass the verification call. Be bold, it’s easy stuff and you can do it too. You don’t
have to tell them any strategy (alpha), you just make them believe you have basic knowledge to
create strategies (alphas). They have several hundreds of consultants to call and verify, hence it
is going to be a short call.

Some basic narratives to remember -

● I manage my account myself and no one else has access to it.
● I create my alphas by myself and I do not share alphas with anyone or take alphas from
anyone.
● I create and submit alphas daily. Sometimes 1 alpha, sometimes 5 alphas depending upon
time available to me. I used to create alphas in USA region, but these days I create alphas
in the Asia region.
● I learnt about creating alphas from the internet, videos, online courses, your website,
research papers, blog posts, etc.

Now let us get to the details.

Table of Contents -
1. Summary of the Work
2. Examples of Alphas and what do they look like
3. Which datasets we use to create an alpha
4. How does the Worldquant website Websim look like
5. Frequently Asked Questions
Summary of the work
What is Worldquant and why do they need a remote Consultant role ?

Worldquant is an international hedge-fund company. Worldquant takes assets of few companies,

and invests them in the stock market on their behalf. For this, Worldquant needs strategies of
investment. And consultants give them strategies, called as Alpha. The alpha uses historical data
(of previous 10 years or so) to predict the behavior of stocks in the future.

Other known hedge fund companies are JPMorgan, DE Shaw, Two Sigma and Goldman Sachs.

Generally the companies hire Quant Analysts and pay them handsomely to create strategies for
them. Worldquant also hires people full time, but WQ created Websim and kind of outsourced
the work to the public. Websim consulting is a freelance job as a quant analyst.

Worldquant currently trades in three markets - USA, Europe, and Asia. It has historical data of
the stocks in these markets and asks us to use the data to predict the behavior of the stocks. When
we first create an account, only the USA market is open for us to create alphas on. Once we
reach Gold level score and become a consultant, EUR and ASI markets open up for us too.

Let’s take an example of how Worldquant uses an alpha.

Let’s say in the Asia market, there are 5 stocks namely SBI, Reliance, HDFC, Tata Steel, and
Bajaj Finance. WQ has historical data of previous 10 years of these stocks. Now we will create
an alpha (a mathematical expression). This alpha predicts a trend of these stocks, whether their
price will go up or down in the future. If the history suggests that the alpha can predict the trend
somewhat accurately on the historical data, then Worldquant will say that this is a good alpha
and will allow us to Submit it. This alpha will then assign weights to the stocks. Let’s say the
weight looks like this -
Stocks SBI Reliance HDFC Tata Steel Bajaj Finance

Weights 2% 58% 12% 12% 16%

And suppose Worldquant has 100 million rupees, ready to invest the next day, it will invest 2,
58, 12, 12, 16 millions respectively. This array/vector/table of weights is also called ​Portfolio
and this field of finance is called ​Portfolio Optimization​.

That is the gist of all the work.

Now you will be able to understand the definition of an alpha from their website

https://websim.worldquantvrc.com/learn/tutorials/discover-websim/about-websim

1. Alpha

In WebSim, an 'Alpha' refers to a mathematical model or strategy, written as an

expression, which places different bets (weights) on different instruments (stocks), and is
expected to be profitable in the long run. After a user enters an Alpha expression that
consists of data, operators and constants, the input code is evaluated for each instrument
to construct a portfolio. Then WebSim makes investments in each instrument for a
one-day period in proportion to the values of the expression. The process repeats each
day.

2. Weights

In simple terms, WebSim uses an Alpha to create a vector of weights, with each weight
corresponding to one of the stocks in the selected universe. These weights may or may
not be market neutralized, as per your neutralization setting (by market, industry,
sub-industry or none). This creates a portfolio for each day in the simulation period,
which can then be used to calculate that day's Profit and Loss (PnL).
Examples of alphas and what they look like

“Alpha is an idea, expressed in mathematical form.”.

“Alpha is an answer to the question, on which stocks would you put your bet?”

Example 1
Idea : We want more on companies which generate higher income per dollar of assets owned.
​ ncome/assets
Alpha : i

Here income and assets are the ​variables​ (historical data of the stocks). That is it, this is an
alpha. They are also called ​trading signals​ of the stocks.

Example 2
Idea : Bet on companies which generate higher income per dollar of revenue (income +
expenses). The abs() is the ​absolute​ ​operator ​which converts negative values to positive.
Alpha : ​abs(income/revenue)

Example 3
Idea : ​Use correlation between daily close and open prices in the past 10 days as stock
weights.
Alpha : ​ts_corr(close, open, 10)
Here ​ts_corr​ is an operator which stands for time series correlation.

Example 4
Idea : Fluctuation of stock throughout the day with respect to the difference between opening
and closing price of the stock.
Alpha : ​(high-low) / (close-open)
high, low = highest and lowest price of the stock in a day
open, close = opening (in the morning) and closing (in the evening) price of the stock
So, an alpha depends on three things - ​1.​ ​variables​ and ​2.​ ​operators​ as you saw in the above
examples. An alpha also depends on some other factors (which are called ​3. Simulation settings
in the Websim) which are -

● Region : ​Possible values are USA, Europe or Asia.

A good alpha in the USA region may not work the same way for the stocks in Asia region
and vice versa.
● Universe ​: Possible values are TOP3000, TOP1500, TOP500, TOP150, etc.
This means that if the region is USA and universe is TOP3000, the alpha will create
weights for the Top 3000 actively traded stocks of USA.
● Other settings are Decay, Delay, Neutralization, Truncation which is just to tweak the
alphas. There is no need to understand them as of now.
What are the datasets that Websim has (Historical data of the stocks)
Websim has thousands of variables/datasets! Some datasets are specific to regions (USA, EUR,
ASI). The variables are grouped together and named as well. Let’s have a look at few examples
of the ​types of datasets​ which will be easy to remember. Every dataset has a lot of variables.

1. Price Volume Data

This is specific the stocks and changes daily.

Price volume data gives open/high/low/close price values and average daily volume traded of
stocks for every day.

2. Company Fundamental Data

This is information about the company.

For example -
assets Total Assets
cashflow Cashflow
debt Total Debt (Quarterly)
employee Employees
income Net Income
income_tax Income Taxes
revenue Revenue
sales Sales

3. ​Sentiment Data
This is sentiment about the company on social media and various news channel. These variables
tell us what is the general sentiment among people, whether they like or dislike a company.

4. ​News Data
This data is related to news channels. If a news channel is talking about a particular stock, how
does it affect the stock prices, for how long was the news aired, etc.

5. Relationship Data
Company’s relationship with other companies. Partnerships, Competitors, Customer companies,
etc.
6. Estimate Data
Sometimes companies estimate data for themselves. Facebook might say that we will reach 2
billion users by the end of the user, or this much revenue by the end of the quarter, etc. These
variables are the estimates made public by the company.
The Websim platform
Worldquant’s website is - ​https://websim.worldquantvrc.com

After you login with your email id and password, you will see the following dashboard

The “Simulate” tab is where we write an alpha and simulate the results. Websim simulates the
alphas, which takes about 1 minute, and gives us the results. If the alpha is good, websim allows
us to Submit the alpha. The submitted alphas account for the payout generated of that particular
day. Every day payout varies. It can be $2 or $20 or more depending upon the type and quality of
the alpha. You can check the performance tab everyday around 12PM to see the payout of the
previous day.

Let’s try simulating an alpha!

ts_corr(close, open, 10)

Check out the screenshots below.

In the left side, we get to write our Alpha as the expression. We then click on the large green
button below called Simulate. It then simulates the alpha and shows the results in the right.

You can find the blue ​Settings​ button in the middle. An screenshot is attached below. You can
see that we have set the settings to TOP 1500 stocks of ASIA. All other settings do not change,
and are the same for all the alphas that we create. We sometimes change the region and universe
of alphas.
If we scroll down in the right side of the panel, we can see more results of the alpha. Screenshots
attached.
You can see the historical data here from the year 2008 to 2018. And all these results Sharpe,
Fitness, etc. are used to determine the quality of the alpha. Better fitness, better payout for the
alpha. Generally, an alpha is submittable when -

Fitness > 1
Sharpe > 1.25
You can other result checks below.

You can see that the “Submit Alpha” button is disabled. This means that this alpha can not be
submitted and is not good. Websim has some “checks” to establish which alpha is submittable or
not. They keep adding more and more checks, thus making it difficult for us to create good
quality alphas.
Try logging into Websim and simulating alphas by yourself. Go through the PDF multiple times
to understand it completely. You can keep the PDF open when you get the call, but we highly
recommend you to learn the concepts.

Here are additional links for your understanding (optional). All can be found under “Learn” tab
when you log in to Websim -

Note : Open the links on laptop. Their website is not optimized for mobile.

1. All tutorials - ​https://websim.worldquantvrc.com/learn/tutorials

2. All references - ​https://websim.worldquantvrc.com/learn/references

Some optional pages in case you want to read more is listed here. There is no need to memorize
any of it, and is there for the purpose of understanding only.
● More examples of alphas
● Available datasets
● Available Operators
● More available datasets
● More available operators
● Regions and Datasets
● Details on the simulation settings
● Simulating an alpha on websim
● Alpha performance
● About Websim
Frequently Asked Questions
What is an Alpha?
This is the most asked question in a WorldQuant call. Try to sound bold and nail this question.
You have a chance to show your knowledge here. Start with “Why am I being asked this
question?” and sound irritated that this doesn’t make sense to you that out of the blue someone
has called you and asked this question. But after sometime, do answer, and with confidence.

What are the datasets you are using?

You can tell them that you are using a combination of all kinds of datasets. Name a few datasets.
6 have been listed above - ​Price-Volume, Sentiment, News Data, Company Fundamental
data​, etc.

Which region are you working on?

I currently work on ​Asian​ stocks/market.

Sometimes TOP 150 and sometimes TOP 1500 stocks. (Also known as universe)

How did you learn about alpha making?

I have read articles on the internet and watched several videos and online courses. I read research
papers as well.

Can you name any video, article, research paper?

No, fuck you.
(Actually you don’t have to tell them your ideas, it’s in their contract)

Who told you about Websim?

Multiple answers, in preference order -
I learnt about Worldquant on Facebook.
I saw friends on Facebook posting about Worldquant.
(Don’t name any of your friend. Don’t say you work with someone in creating alphas. They will
suspect that you two share alphas.)

Do you share alphas with someone?

No. I am actually quite busy now. Please email me with your questions. Tata, bye bye.