charliedream1 Multi-Factor Cross-Sectional Stock Ranking
Purpose
On the same time cross-section, compute multiple factor values for many stocks, standardize them, combine them into a composite score, and select the top-ranked stocks to build a portfolio.
Signal Logic
- Factor calculation: calculate N factors for each stock (such as momentum, value, and quality)
- Cross-sectional standardization: standardize each factor on the cross-section with Z-score normalization (subtract mean, divide by standard deviation)
- Composite scoring: sum the factors with equal weights (or custom weights) to obtain a composite score
- Rank and select: go long the TopN names, with weight = 1/N for each
Built-In Factors
| Factor Name | Calculation Method | Direction |
|---|---|---|
| momentum | Return over the past N days | Positive (higher is better) |
| reversal | Return over the past 5 days | Negative (lower is better) |
| volatility | Standard deviation of returns over the past N days | Negative (lower is better) |
| volume_ratio | Today's volume / N-day average volume | Positive |
If extra_fields are available (China A-shares), you can also add:
pe_factor: 1/PE (the larger, the cheaper)pb_factor: 1/PBroe_factor: ROE (the larger, the better)
Parameters
| Parameter | Default | Description |
|---|---|---|
| momentum_window | 20 | Momentum lookback window |
| vol_window | 20 | Volatility lookback window |
| top_n | 3 | Number of selected stocks |
| rebalance_freq | 20 | Rebalancing frequency (trading days) |
Common Pitfalls
- Cross-sectional standardization requires at least 3 stocks, otherwise Z-scores are meaningless
- Keep the previous signal unchanged between rebalance dates (do not rerank every day)
- Factors have different directions: momentum is positively sorted, volatility is negatively sorted, so directions must be aligned before standardization
- Portfolio weights must be normalized: each TopN stock gets 1/N, all others get 0
Dependencies
pip install pandas numpy
Signal Convention
1/N= selected into TopN (equal-weight long),0= not selected