Alpha Decay
Definition
The gradual reduction in a trading signal's predictive power over time after it is generated.
Explanation
Alpha decay occurs because markets incorporate information over time. A buy signal generated on Monday may lose 20% of its edge by Tuesday and 50% by Friday as other participants act on similar information. In quantitative trading, measuring and managing alpha decay is critical — it determines optimal execution speed and position sizing. Stoquity's signal freshness dashboard tracks this decay for every trade recommendation.
How Stoquity Uses This
Stoquity incorporates alpha decay analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.