When trades are crossed between multiple alpha streams, portfolio turnover decreases. Turnover reduction needs to be taken into account for optimizing asset allocation to these alphas. We propose a spectral model of turnover reduction for a general alpha correlation matrix in the limit where the number of alphas is large .
We give a simple explicit formula for turnover reduction when a large number of alphas are traded on the same execution platform and trades are crossed internally. We model turnover reduction via alpha correlations. Then, for a large number of alphas , turnover reduction is related to the largest eigenvalue and the corresponding eigenvector of the alpha correlation matrix .
R
When
We give a simple explicit formula for turnover reduction when a large number of alphas are traded on the same execution platform and
R
between multiple alpha streams, portfolio turnover decreases. Turnover reduction needs to be taken into account for optimizing asset allocation to these alphas. We propose a spectral model of turnover reduction for a general alpha correlation matrix in the limit where the
internally. We model turnover reduction via alpha correlations. Then, for a large
R
is large
, turnover reduction is related to the largest eigenvalue and the corresponding eigenvector of the alpha correlation matrix