11/22/24, 4:50 PM Machine Learning (Trang 1 trên 4)

Machine Learning
* Bắt buộc

Alef Associates Case Scenario

Alef Associates manages a long-only fund specializing in global smallcap equities. Since its founding
a decade ago, Alef maintains a portfolio of 100 stocks (out of an eligible universe of about 10,000
stocks). Some of these holdings are the result of screening the universe for attractive stocks based
on several ratios that use readily available market and accounting data; others are the result of
investment ideas generated by Alef’s professional staff of five securities analysts and two portfolio
managers.

Although Alef’s investment performance has been good, its Chief Investment Officer, Paul
Moresanu, is contemplating a change in the investment process aimed at achieving even better
returns. After attending multiple workshops and being approached by data vendors, Moresanu feels
that data science should play a role in the way Alef selects its investments. He has also noticed that
much of Alef’s past outperformance is due to stocks that became takeover targets. After some
research and reflection, Moresanu writes the following email to the Alef’s CEO.

Subject: Investment Process Reorganization

I have been thinking about modernizing the way we select stock investments. Given that our past
success has put Alef Associates in an excellent financial position, now seems to be a good time to
invest in our future. What I propose is that we continue managing a portfolio of 100 global small-
cap stocks but restructure our process to benefit from machine learning (ML). Importantly, the new
process will still allow a role for human insight, for example, in providing domain knowledge. In
addition, I think we should make a special effort to identify companies that are likely to be
acquired. Specifically, I suggest following the four steps which would be repeated every quarter.

Step 1: We apply ML techniques to a model including fundamental and technical variables

(features) to predict next quarter’s return for each of the 100 stocks currently in our
portfolio. Then, the 20 stocks with the lowest estimated return are identified for replacement.

Step 2: We utilize ML techniques to divide our investable universe of about 10,000 stocks into
20 different groups, based on a wide variety of the most relevant financial and non-financial
characteristics. The idea is to prevent unintended portfolio concentration by selecting stocks
from each of these distinct groups.

Step 3: For each of the 20 different groups, we use labeled data to train a model that will
predict the five stocks (in any given group) that are most likely to become acquisition targets
in the next one year.

Step 4: Our five experienced securities analysts are each assigned four of the groups, and
then each analyst selects their one best stock pick from each of their assigned groups. These

https://forms.office.com/Pages/ResponsePage.aspx?id=oxOLWDtl90yKwFmEfrLciPAHWiwR_xhHpjpAOsAGEsRUNlkzNUxISjBSOVVGV0g0S0JFTkJZU0x… 1/5
11/22/24, 4:50 PM Machine Learning (Trang 1 trên 4)

20 “high-conviction” stocks will be added to our portfolio (in replacement of the 20 relatively
underperforming stocks to be sold in Step 1).

A couple of additional comments related to the above:

Comment 1 The ML algorithms will require large amounts of data. We would first need to
explore using free or inexpensive historical datasets and then evaluate their usefulness for
the ML-based stock selection processes before deciding on using data that requires
subscription.

Comment 2 As time passes, we expect to find additional ways to apply ML techniques to

refine Alef’s investment processes.

What do you think?

Paul Moresanu

1. The machine learning techniques appropriate for executing Step 1 are most
likely to be based on: *

regression

classification

clustering

2. Which of the following ML models would be least appropriate to avoid

overfitting? *

Regression tree with pruning.

LASSO with lambda (λ) equal to 0.

LASSO with lambda (λ) between 0.5 and 1.

3. Which of the following machine learning techniques is most appropriate for

executing Step 2: *

K-Means Clustering

Principal Components Analysis (PCA)

https://forms.office.com/Pages/ResponsePage.aspx?id=oxOLWDtl90yKwFmEfrLciPAHWiwR_xhHpjpAOsAGEsRUNlkzNUxISjBSOVVGV0g0S0JFTkJZU0x… 2/5
11/22/24, 4:50 PM Machine Learning (Trang 1 trên 4)

Classification and Regression Trees (CART)

4. The hyperparameter in the ML model to be used for accomplishing Step 2 is? *

100, the number of small-cap stocks in Alef’s portfolio.

10,000, the eligible universe of small-cap stocks in which Alef can potially invest.

20, the number of different groups (i.e. clusters) into which the eligible universe of
small-cap stocks will be divided.

5. The target variable for the labelled training data to be used in Step 3 is most
likely which one of the following? *

A continuous target variable.

A categorical target variable.

An ordinal target variable.

6. Comparing two ML models that could be used to accomplish Step 3, which

statement(s) best describe(s) the advantages of using Classification and
Regression Trees (CART) instead of K-Nearest Neighbor (KNN)?
Statement I: For CART there is no requirement to specify an initial
hyperparameter (like K).
Statement II: For CART there is no requirement to specify a similarity (or
distance) measure.
Statement III: For CART the output provides a visual explanation for the
prediction. *

Statement I only.

Statement III only.

Statements I, II and III.

https://forms.office.com/Pages/ResponsePage.aspx?id=oxOLWDtl90yKwFmEfrLciPAHWiwR_xhHpjpAOsAGEsRUNlkzNUxISjBSOVVGV0g0S0JFTkJZU0x… 3/5
11/22/24, 4:50 PM Machine Learning (Trang 1 trên 4)

7. Assuming a Classification and Regression Tree (CART) model is used to

accomplish Step 3, which of the following is most likely to result in model
overfitting? *

Using regularization

Including an overfitting penalty (i.e., regularization term).

Using a fitting curve to select a model with low bias error and high variance error.

8. Assuming a Classification and Regression Tree (CART) model is initially used to

accomplish Step 3, as a further step which of the following techniques is most
likely to result in more accurate predictions? *

Discarding CART and using the predictions of a Support Vector Machine (SVM) model
instead.

Discarding CART and using the predictions of a K-Nearest Neighbor (KNN) model
instead.

Combining the predictions of the CART model with the predictions of other models –
such as logistic regression, SVM, and KNN – via ensemble learning.

9. Regarding Comment #2, Moresanu has been thinking about the applications of
neural networks (NNs) and deep learning (DL) to investment management.
Which statement(s) best describe(s) the tasks for which NNs and DL are well-
suited?

Statement I: NNs and DL are well-suited for image and speech recognition, and
natural language processing.
Statement II: NNs and DL are well-suited for developing single variable
ordinary least squares regression models.
Statement III: NNs and DL are well-suited for modelling non-linearities and
complex interactions among many features. *

Statement II only.

Statements I and III.

https://forms.office.com/Pages/ResponsePage.aspx?id=oxOLWDtl90yKwFmEfrLciPAHWiwR_xhHpjpAOsAGEsRUNlkzNUxISjBSOVVGV0g0S0JFTkJZU0x… 4/5
11/22/24, 4:50 PM Machine Learning (Trang 1 trên 4)

Statements I, II and III.

Trang 1 trên 4

Không bao giờ tiết lộ mật khẩu của bạn. Báo cáo lạm dụng

Nội dung này được tạo bởi chủ sở hữu của biểu mẫu. Dữ liệu bạn gửi sẽ được gửi đến chủ sở hữu biểu mẫu.
Microsoft không chịu trách nhiệm về quyền riêng tư hoặc thực tiễn bảo mật của khách hàng, bao gồm cả các biện
pháp bảo mật của chủ sở hữu biểu mẫu này. Không bao giờ đưa ra mật khẩu của bạn.
Microsoft Forms | Các cuộc khảo sát, câu đố và cuộc thăm dò do AI cung cấp Tạo biểu mẫu riêng của tôi
Chủ sở hữu của biểu mẫu này chưa cung cấp tuyên bố về quyền riêng tư về cách họ sẽ sử dụng dữ liệu phản hồi
của bạn. Không cung cấp thông tin cá nhân hoặc thông tin nhạy cảm. | Điều khoản sử dụng

https://forms.office.com/Pages/ResponsePage.aspx?id=oxOLWDtl90yKwFmEfrLciPAHWiwR_xhHpjpAOsAGEsRUNlkzNUxISjBSOVVGV0g0S0JFTkJZU0x… 5/5