Answer: Trimming, Neutralization

## Explanation This question involves alpha analysis procedures in portfolio construction. Let's analyze each option: **A. Stratification** - This involves grouping securities by characteristics (like industry, size, etc.) to ensure proper diversification. While relevant to portfolio construction, it doesn't specifically address removing extreme alphas or biases. **B. Neutralization** - This is the correct procedure for removing biases or undesirable bets from alphas. Neutralization involves adjusting alphas to eliminate exposure to specific factors (such as industry, country, or style biases) that the portfolio manager doesn't want to bet on. **C. Scaling** - This involves adjusting the magnitude of alphas, typically to make them comparable across different securities or to control portfolio turnover. It doesn't specifically address removing extreme values or biases. **D. Trimming** - This is the correct procedure for excluding very large positive and negative alphas from calculations. Trimming involves capping extreme alpha values to prevent them from having disproportionate influence on portfolio construction. Since the question asks about procedures to: 1. Exclude very large positive and negative alphas (Trimming) 2. Remove biases or undesirable bets from alphas (Neutralization) The analysts should apply both **Trimming (D)** and **Neutralization (B)** to execute their plan completely.

Author: LeetQuiz .