Lesson 6

Methods and Functions

This lesson covers:

  • Calling functions with more than one input and output
  • Calling functions when some inputs are not used

Read the data in momentum.csv and creating some variable. This cell uses some magic to automate repeated typing.

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# Setup: Load the momentum data
import pandas as pd

momentum = pd.read_csv("data/momentum.csv", index_col="date", parse_dates=True)

print(momentum.head())

mom_01 = momentum["mom_01"]
mom_10 = momentum["mom_10"]

This data set contains 2 years of data on the 10 momentum portfolios from 2016–2018. The variables are named mom_XX where XX ranges from 01 (work return over the past 12 months) to 10 (best return over the past 12 months).

Problem: Calling Methods

Get used to calling methods by computing the mean, standard deviation, skewness, kurtosis, max, and min.

Use the DataFrame functions mean, std, skew and kurt, min and max to print the values for mom_01.

In the second cell, call describe, a method that summarizes Series and DataFrames on mom_01.

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Problem: Use NumPy and SciPy functions

Use the NumPy functions mean, std, min, max and the SciPy stats functions skew and kurtosis to produce the same output.

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Problem: Calling Functions with 2 Outputs

Some useful functions return 2 or more outputs. One example is np.linalg.slogdet computes the signed log determinant of a square array. It returns two output, the sign and the log of the absolute determinant.

Use this function to compute the sign and log determinant of the 2 by 2 array:

1  2
2  9
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Problem: Calling Functions with 2 Inputs

Many functions take two or more inputs. Like outputs, the inputs are simply listed in order separated by commas. Use np.linspace to produce a series of 11 points evenly spaced between 0 and 1.

np.linspace(start, stop, num=50, endpoint=True, retstep=False, dtype=None, axis=0)
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Problem: Calling Functions using Keyword Arguments

Many functions have optional arguments. You can see these in a docstring since optional arguments take the form variable=default. For example, see the help for scipy.special.comb, which has the function signature

comb(N, k, exact=False, repetition=False)

This tells us that N and k are required and that the other 2 inputs can be omitted if you are happy with the defaults. However, if we want to change some of the optional inputs, then we can directly use the inputs name in the function call.

Compute the number of distinct combinations of 5 objects from a set of 10.

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Compute the total number of combinations allowing for repetition using the repetition=True keyword argument.

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Compute the number of combinations using the exact representation using only positional arguments for all 3 inputs. Repeat using the keyword argument for exact.

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Problem: Function Help

Explore the help available for calling functions ? operator. For example,

import scipy.stats as stats

stats.kurtosis?

opens a help window that shows the inputs and output, while

help(stats.kurtosis)

shows the help in the console.

Note: VS Code does not support the ? form of help

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Problem: Use help with a method

Use help to get the help for the kurt method attached to momentum.

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Exercises

Exercise: Use info

Use the info method on momentum to get information about this DataFrame.

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Exercise: Compute the day-by-day mean

Compute the day-by-day mean return of the portfolios in the momentum DataFrame using the axis keyword argument. Use head and tail to show the first 5 rows and last 5 rows

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Exercise: Compute the standard deviation of mean returns

Compute the standard deviation of the mean returns by chaining methods.

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Exercise: Compute the average standard deviation

Compute the mean standard deviation as:

$$ \sqrt{N^{-1} \sum_{i=1}^N V[r_i]} $$

where $V[r_i]$ is the variance of portfolio $i$.

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