Lessons Learnt From A Real Pairs Trading Signal On The Requirements To Generate Real Alpha In A Competitive Market (opens in new tab)

It is generally understood that signals decay, but the mechanisms that lead to their decay is seldom well understood. Today, I want to show you a real trading signal that every systematic long short team ran from 2010 to… present day, and explain to you exactly how alpha compression happens, and what are the implications of this compression when YOU are looking to generate alpha.