Information Coefficient (IC)
The Information Coefficient (IC) is a statistic that measures the rank correlation between a model's predicted rankings for securities and their subsequent realized returns. It is commonly computed as a Spearman rank correlation (with Kendall's tau as an alternative).
Example: In a backtest of a factor model, the IC for the model’s stock rankings averaged 0.18 over 12 months, indicating a measurable alignment between predicted ranks and realized returns.
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