Information Coefficient
The Information Coefficient (IC) is the correlation between a predictive signal for assets (such as a factor score or model output) and the subsequent realized returns of those assets. In practice, it is often computed as the Pearson correlation across assets at a given rebalancing date; for signals that are ordinal, Spearman rank correlation may be used.
Example: A quantitative team computes the Information Coefficient for a new factor signal across 100 stocks at each monthly rebalancing, using the next month's returns to assess whether higher signal values tended to precede higher returns.
💬 Comments