The information coefficient (IC) is a measure of the merit of a predicted value. In
finance, the information coefficient is used as a performance metric for the predictive skill of a
financial analyst
A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job.
The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, ...
.
The information coefficient is close to
correlation in that it can be seen to measure the linear relationship between two
random variables, e.g. predicted stock
returns
Return may refer to:
In business, economics, and finance
* Return on investment (ROI), the financial gain after an expense.
* Rate of return, the financial term for the profit or loss derived from an investment
* Tax return, a blank document or t ...
and the actualized returns. The information coefficient ranges from -1 to 1, with 0 denoting no linear relationship between predictions and actual values (poor forecasting skills) and 1 denoting a perfect linear relationship (good forecasting skills). Similarly, -1 reflects a negative linear relationship, i.e. the analyst always fails to make an accurate prediction.
See also
*
Information ratio
References
Financial economics
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