Capacity Stat Arb Interview Guide
Capacity stat arb interview guide covering capacity, turnover, market impact, liquidity, decay, scaling, and examples.
Candidates connecting alpha, turnover, liquidity, and market impact.
Capacity limits how much capital a strategy can use
A strategy has limited capacity when larger size increases impact, slippage, crowding, borrow cost, or execution delay enough to reduce edge.
Turnover and liquidity drive capacity
A fast signal in illiquid names may have much lower capacity than a slower signal in deep markets with lower costs and more reliable execution.
Concrete example
A daily mean-reversion signal may look strong at small size but decay after market impact and spread costs at larger participation rates.
Scaling should be tested explicitly
Model transaction costs, participation limits, borrow, volume constraints, and alpha decay instead of multiplying small-size returns.
Common mistakes
Candidates often scale Sharpe linearly with capital. Capacity analysis asks when additional capital changes realized returns.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.