Alpha Decay Detection

Detect and analyze alpha decay in trading strategies using statistical methods.

Usage

• /alpha-decay - Check all active strategies
• /alpha-decay --strategy momentum-001 - Analyze specific strategy
• /alpha-decay --threshold 0.3 - Custom decay threshold
• /alpha-decay --period 90 - Analysis period in days
• /alpha-decay --detailed - Show detailed decay metrics

Decay Indicators

Related Files

• scripts/risk_management/strategy_analytics.py - AlphaDecayDetector class
• scripts/risk_management/alpha_research.py - Signal evaluation
• services/risk/risk_manager.py - Strategy monitoring

Instructions

When this skill is invoked:

1. Parse arguments:

   • No args: Scan all active strategies
   • --strategy <id>: Single strategy analysis
   • --threshold: Custom decay threshold (default 0.3)
   • --period: Lookback period in days (default 60)

2. Load strategy data:

   • Fetch returns from database/API
   • Get strategy metadata and targets
   • Load benchmark/factor returns

3. Run decay detection:

   python
   1from risk_management.strategy_analytics import AlphaDecayDetector
   2
   3detector = AlphaDecayDetector(
   4    decay_threshold=0.3,
   5    confidence_level=0.95,
   6    lookback_window=60
   7)
   8signals = detector.detect_decay(returns)

4. Display decay report:

   Alpha Decay Analysis
   ═══════════════════════════════════════════════════════════
   
   Strategy: momentum-001
   Period: Last 60 days
   Status: ⚠️  WARNING - Decay signals detected
   
   DECAY SIGNALS
   ─────────────────────────────────────────────────────────
   Signal          Severity    Confidence    Description
   ─────────────────────────────────────────────────────────
   Sharpe Decay    0.65        87%          Sharpe dropped 42%
   IC Decay        0.45        72%          IC now 0.015 (was 0.04)
   Hit Rate        0.30        65%          Win rate 43% (target 52%)
   
   METRICS COMPARISON
   ─────────────────────────────────────────────────────────
   Metric          Current     Historical    Change
   ─────────────────────────────────────────────────────────
   Sharpe Ratio    0.85        1.45          -41%
   IC Mean         0.015       0.042         -64%
   Hit Rate        43%         52%           -17%
   Avg Return      0.02%       0.08%         -75%
   
   RECOMMENDATIONS
   ─────────────────────────────────────────────────────────
   1. Review regime indicators - potential regime change
   2. Check for crowding in signal factors
   3. Validate data inputs for drift
   4. Consider reducing position sizing by 50%
   

5. For --detailed:

   • Rolling IC time series
   • Distribution shift analysis
   • Factor exposure changes
   • Correlation regime changes

6. Severity thresholds:

   • ACTIVE: No decay (severity < 0.3)
   • WARNING: Moderate decay (0.3 <= severity < 0.6)
   • CRITICAL: Severe decay (severity >= 0.6)