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Data Science Intern Assignment- Algorithmic Trading

The document outlines an assignment for a Data Science Intern focused on algorithmic trading, consisting of four main tasks: data analysis and feature engineering, model building, backtesting a trading strategy, and optimization and refinement. Each task includes specific deliverables such as Python scripts, reports, and visualizations to assess the candidate's skills in analyzing financial data and developing predictive models. Additionally, a bonus task is provided for experimenting with advanced models, with evaluation criteria emphasizing technical skills, creativity, clarity, performance assessment, and communication.

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Evee Cameron
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21 views3 pages

Data Science Intern Assignment- Algorithmic Trading

The document outlines an assignment for a Data Science Intern focused on algorithmic trading, consisting of four main tasks: data analysis and feature engineering, model building, backtesting a trading strategy, and optimization and refinement. Each task includes specific deliverables such as Python scripts, reports, and visualizations to assess the candidate's skills in analyzing financial data and developing predictive models. Additionally, a bonus task is provided for experimenting with advanced models, with evaluation criteria emphasizing technical skills, creativity, clarity, performance assessment, and communication.

Uploaded by

Evee Cameron
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Data Science Intern Assignment: Algorithmic Trading

Objective:​
To assess the candidate's ability to analyze financial data, develop predictive models, and
implement basic algorithmic trading strategies using data science techniques.

Task 1: Data Analysis and Feature Engineering

Dataset:​
You are provided with historical stock price data for a company (or use a publicly available
dataset like the Yahoo Finance API to get data for any stock of your choice).

1.​ Download the data (e.g., 3 years of daily stock prices: open, close, high, low,
volume).
2.​ Preprocess the data:
○​ Handle missing values, outliers, and anomalies.
○​ Perform feature engineering by creating technical indicators (e.g., Moving
Averages, RSI, MACD) that could be useful for algorithmic trading.
3.​ Data Visualization:
○​ Plot the stock’s price data with relevant technical indicators to visualize trends
and potential trading signals.
○​ Plot the distribution of returns and volume over time.

Deliverables for Task 1:

●​ A Python script or Jupyter notebook demonstrating the steps of data preprocessing


and feature engineering.
●​ Data visualizations highlighting trends, patterns, and key indicators.

Task 2: Model Building

Now that you have engineered some features, the next task is to develop a predictive model
to forecast whether the price will go up or down the next day (binary classification).

1.​ Train a predictive model to forecast the direction of price movement (up/down) for
the next trading day using the engineered features.
○​ Use machine learning algorithms such as Logistic Regression, Random
Forest, or XGBoost.
○​ Split the data into training and testing sets.
○​ Optimize the model with cross-validation and tuning parameters (if
applicable).
2.​ Evaluation:
○​ Evaluate the model using accuracy, precision, recall, and F1-score.
○​ Also, compute the confusion matrix and ROC-AUC curve to assess
performance.

Deliverables for Task 2:

●​ Code for training and evaluating the model.


●​ A report summarizing the model’s performance, and any improvements you would
suggest.

Task 3: Backtesting a Simple Trading Strategy

Using the predictive model built in Task 2, you need to create a simple algorithmic trading
strategy. The strategy will place a "buy" order if the model predicts the price will go up the
next day, and a "sell" order if the model predicts the price will go down.

1.​ Backtesting the strategy:


○​ Backtest the trading strategy on historical data and calculate its performance
metrics (e.g., cumulative returns, Sharpe ratio).
○​ Simulate trade execution with an assumed transaction cost (e.g., 0.1% per
trade) and slippage.
2.​ Evaluate the performance:
○​ Plot the strategy’s performance over time, comparing it against the
buy-and-hold strategy.
○​ Calculate performance metrics such as cumulative returns, maximum
drawdown, and Sharpe ratio.

Deliverables for Task 3:

●​ Python code for the backtesting process.


●​ A report with the backtest results, strategy performance, and insights.

Task 4: Optimization and Refinement

The next step in improving the algorithm is to optimize it.

1.​ Parameter Optimization:


○​ Use techniques like grid search or random search to optimize
hyperparameters of the predictive model (e.g., number of trees in Random
Forest, learning rate in XGBoost).
2.​ Strategy Refinement:
○​ Modify the trading strategy to include risk management (e.g., stop-loss,
take-profit).
○​ Assess the effect of adding more features or improving the model on strategy
performance.
Deliverables for Task 4:

●​ Code for parameter optimization and strategy refinement.


●​ A brief report discussing the improvements made and the final results after
optimization.

Bonus Task: (Optional)

Alternative Models:​
If time permits, experiment with more advanced models (e.g., Recurrent Neural Networks or
LSTM for time-series forecasting). Compare their performance with the traditional machine
learning models used in Task 2.

Deliverables:

●​ Code and a comparison of results between models.

Submission Guidelines:

●​ Submit all code in a Jupyter notebook or Python script format.


●​ Ensure the code is well-documented, and provide clear explanations for each step.
●​ Include a brief report summarizing your findings, challenges faced, and
improvements you would suggest for future work.

Evaluation Criteria:

1.​ Technical Skills: Ability to preprocess, analyze, and model financial data effectively.
2.​ Creativity: Innovative feature engineering and use of appropriate models and
techniques.
3.​ Clarity of Code and Reports: Well-structured code with clear explanations and
well-documented reports.
4.​ Backtesting and Strategy Performance: Understanding of trading strategies, and
ability to backtest and assess performance metrics.
5.​ Communication: Clear and concise communication of your approach, results, and
insights.

Good luck, and we look forward to seeing your work!

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