It comes from the “residual” of a linear regression. So you take some obvious variable like the market basket of stocks, do a regression, and then do your mach

It comes from the “residual” of a linear regression. So you take some obvious variable like the market basket of stocks, do a regression, and then do your machine learning on the residuals. The reason is that you don’t get “credit” for doing whatever the market did, you only get credit for doing even better.