Research Article #34 - Trading Strategies with Bitcoin Beta De-noising

A Step-by-Step Guide to Isolating ETH-Specific Signals and Improving Predictive Accuracy in Cryptocurrency Markets

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We all want to find “alpha” in the markets.

We want to find that signal or set of signals in the data, that will provide us with consistent, above just normal market returns.

The problem is that everyone’s trying to find them.

We’re competing against the brightest minds in the world to find it.

And one of the things that makes it even harder to find true signal, is that it is buried under tons of noise.

One of the common techniques used by professionals, is to first remove that noise from the data, so that we can have better odds of finding that gold that is buried.

Let’s start by understanding the concepts of noise and signal.

• In financial markets, prices are moved around due to many factors. Some of these factors are relevant to the specific asset you’re interested in (signal), and others are just general market movements (noise).

• If we can remove the noise, we will have a better shot at finding true signal, that can help us predict future price movements just a bit better.

Here’s a real world example to make it easier:

Imagine that you’re listening to your favorite song on the radio while driving on a busy highway.

The song represents the “signal” you want to hear.

But there’s a lot of background noise like traffic sounds, the wind, other radio stations overlapping, etc.

To fully enjoy the song, you need to filter out this noise.

How does this apply to financial markets?

Let’s find out!

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Index

• Introduction

• Index

• What is Beta?

• Denoising Returns

• Looking at Signal

• Python Code Section

• Sponsor Of Today’s Article

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