Example input
[TICKERS]: NVDA, AMD, AVGO, ASML, TSM, META, AMZN, GOOGL
[HORIZON]: 3–6 months
[OBJECTIVE]: Long-only; maximize risk-adjusted returns using momentum + trend confirmation
[CONSTRAINTS]: Max position 10%; avoid extreme single-name volatility; monthly rebalance
[DATA]: I have 5y daily close+volume and 5y daily SPY; no fundamentals or options data
Example output
1) Clarifying Questions (0–5)
Are corporate actions already adjusted in your price series (splits/dividends)?
Are you allowed to hold all names equally, or do you prefer mega-cap bias caps?
Do you want a trend filter on SPY to reduce crash risk (yes/no)?
Do you have borrow constraints (not relevant if long-only, confirm)?
2) Data & Assumptions
Data available: 5y daily close + volume for tickers; 5y daily SPY close.
Missing: intraday data, fundamentals, earnings dates/calendar, sector labels, options/implied vol.
Assumptions:
Prices are adjusted for splits/dividends (if not, must adjust).
Liquidity is “acceptable” given large-cap nature, but still check ADV.
3) Signal Library (3–6 signals)
S1: 12–1 Momentum (cross-sectional)
Recipe: compute total return from t-252 to t-21; rank across universe.
Intuition: intermediate momentum persistence.
Failure modes: sharp reversals, crowding unwind.
S2: 3–1 Momentum (tactical overlay)
Recipe: total return from t-63 to t-21; rank.
Intuition: captures shorter trend continuation.
Failure: whipsaw in choppy tape.
S3: Trend confirmation (time-series)
Recipe: price above 200D MA and 50D MA slope positive.
Intuition: avoid buying “falling knives.”
Failure: late to turns; gap risk.
S4: Relative strength vs SPY
Recipe: regression-free proxy: ratio (stock / SPY) trend up over last 3–6 months.
Intuition: prefer leaders vs market.
Failure: market rotation.
S5: Liquidity screen
Recipe: rank by median dollar volume; exclude bottom quartile.
Intuition: reduce execution slippage.
Failure: may exclude smaller high-momentum winners.
4) Cross-Sectional Scoring Model
Preprocess:
Winsorize each signal at 5th/95th percentiles.
Z-score signals cross-sectionally each rebalance date.
Composite alpha (weights sum to 100):
S1 12–1 momentum: 35
S2 3–1 momentum: 25
S3 trend confirmation: 20
S4 relative strength vs SPY: 15
S5 liquidity: 5
Missing values: if any signal missing, replace with cross-sectional median and penalize score by <X> points.
5) Risk Overlay & Constraints Mapping
Risk model approach:
Estimate rolling volatility (e.g., 60D) per stock.
Estimate market beta to SPY (rolling regression 1y) for risk monitoring (not strict constraint if long-only).
Constraints enforcement:
Hard: max position 10%.
Soft: penalize high-vol names via vol-scaling weights.
6) Ranked Shortlist (top 5)
LOW–MED confidence (no event calendar, no fundamentals; purely price/volume)
NVDA
Drivers: likely strong on S1/S2/S4 if leadership persists.
Risks: momentum reversal, crowded positioning; big drawdowns possible.
Falsification: breaks long-term trend + relative strength down for <N> weeks.
Catalysts: trend continuation / sector leadership (no specific events assumed).
Confidence: MED (data adequate for momentum).
META
Drivers: tends to score well on relative strength when in leadership regime.
Risks: sharp rotation out of megacap growth; gap risk.
Falsification: ratio vs SPY rolls over + MA breaks.
Catalysts: continued risk-on tape.
Confidence: MED.
AVGO
Drivers: semiconductor leadership + momentum persistence.
Risks: drawdown spikes; sector rotation.
Falsification: 200D trend break + underperformance vs SPY.
Catalysts: continued semis strength.
Confidence: MED.
AMZN
Drivers: cross-sectional momentum if trend intact.
Risks: whipsaw; rotation into defensives.
Falsification: trend filter fails + weak relative strength.
Catalysts: risk-on continuation.
Confidence: MED.
TSM
Drivers: momentum + relative strength if strong.
Risks: idiosyncratic geopolitical headline risk; gap moves.
Falsification: sudden regime shift; trend break.
Catalysts: sector-wide momentum.
Confidence: LOW–MED (headline risk not modeled).
7) Portfolio Construction Plan
Approach: long-only, score-weighted with volatility scaling.
Weighting:
Start with score-proportional weights on top 5–6.
Apply vol-scaling: target equal risk contribution using 60D vol.
Cap each at 10%.
Rebalance: monthly (or every 4 weeks) with mid-month risk check.
Turnover control:
Replace names only if score rank drops below top <K> or trend filter fails.
Transaction cost guardrails:
Assume <X> bps per trade; penalize high turnover in objective.
8) Robustness Checklist (quant hygiene)
Avoid lookahead: use close at t to compute signals for rebalance at t+1 open/close.
Survivorship: ensure tickers exist historically; use point-in-time constituents if expanding universe later.
Sensitivity:
Try windows: 12–1 vs 9–1; 3–1 vs 6–1.
Weights ±10–20% and confirm stable ranking.
Stability:
Rolling IC (information coefficient) of composite score vs future returns.
Turnover and drawdown constraints.
Regimes:
Split backtest into high-vol vs low-vol SPY regimes.
9) Minimal Data Request (to upgrade confidence)
Adjusted prices (close + corporate actions) + dividends.
Daily high/low (for trend robustness) and dollar volume.
Sector/industry classification.
Event calendar (earnings dates) to manage gap risk.
10) Backtest Spec (walk-forward)
Walk-forward: rolling 3y train (for parameter selection), 6m test; slide monthly.
Benchmark: SPY.
Metrics: CAGR, vol, Sharpe, max drawdown, turnover, hit rate, exposure by name.