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ml4t-information-coefficient skillA

ml4t-information-coefficient is agent-read markdown (skill) from ml4t/skills: Measure predictive signal quality with IC, Rank IC, and IC_IR. Use when evaluating whether a feature has predictive power for returns..

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What the file says

# Information Coefficient

IC is the correlation between a predicted signal and realized returns. It is the primary metric for judging whether a signal has predictive power before building a full backtest.

## The Problem

Reporting a single IC value (or worse, the best IC from many trials) tells you almost nothing. IC varies over time and across market regimes. A signal with mean IC = 0.04 and std = 0.02 (IC_IR = 2.0) is far more valuable than one with mean IC = 0.08 and std = 0.10 (IC_IR = 0.8). Without time-series statistics and proper standard errors, you cannot distinguish a real signal from noise.

## The Pattern

### WRONG

```python
from scipy.stats import spearmanr

# Single pooled IC - hides time variation, inflates significance
ic, pval = spearmanr(all_predictions.flatten(), all_returns.flatten())
print(f"IC = {ic:.4f}, p = {pval:.4f}")
```

### CORRECT

```python
import numpy as np
from scipy.stats import spearmanr

# Cross-sectional IC per period
ic_series = []
for t in timestamps:
    mask = dates == t
    if mask.sum() >= 10:
        ic, _ = spearmanr(predictions[mask], returns[mask])
        ic_series.append(ic)

ic_series = np.array(ic_series)
…

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Source

GitHub

ml4t/skills · 19 stars · license Apache-2.0 · pushed 2026-09-24 · branch main

API

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