This paper mentions the concept of rank which is defined as cross sectional rank. For e.g. one of the alphas (#3) is
(-1 * correlation(rank(open), rank(volume), 10))
10 is just the number of days to take any correlation over. I think we can rank the securities according to Open and Volume each day. So we will be getting different set of securities each day. I don't understand how can this daily varying set be used to get a correlation value.
I thus need guidance on now to calculate this alpha. Any help will be appreciated. Thanks
Update I understand what rank is. What I don't get is how do you calculate correlation between changing values.
Lets say the universe is 3 stocks. On Day 1, Rank Open is 1,2,3 and Rank Volume is 3,2,1. On Day 2, Rank Open is 1,3,2 and Rank Volume is 2,3,1. On Day 3, Rank Open is 3,2,1 and Rank Volume is 1,2,3. This happens for n days (in this case 10).
My primary question is how do you calculate correlation between such vectors to arrive at a single value. Because normal correlation is between two same type of vectors.