ARSENAL > Information coefficient

Information coefficient

Investing
Definition
Statistical measure of an alpha signal's quality — the correlation between a model's predictions and subsequent realized returns. IC of 0.05-0.15 is realistic for a profitable equity factor; IC of 0.30+ would be extraordinary (rarely sustainable).

"Information ratio" combines IC with breadth (number of independent bets). The Fundamental Law of Active Management: IR = IC × √breadth.
← Back to full dictionary