Rolling IC Pass Node
Rolling Information Coefficient — Series Input
Overview
The Rolling IC Pass Node computes the Information Coefficient (IC) over a rolling window — the Spearman rank correlation between a lagged signal and the subsequent realised return. IC measures the predictive power of a factor or signal.
IC = 0 means the signal has no predictive power. IC = 1 means perfect rank-order prediction. In practice, IC above 0.05 is considered meaningful for systematic strategies.
Formula
Parameters
| Parameter | Default | Description |
|---|---|---|
| period | 20 | Rolling window in bars for IC computation |
| lag | 1 | Lag in bars between signal and return (1 = 1-bar forward IC) |
Inputs & Outputs
| Slot | Direction | Type | Description |
|---|---|---|---|
| input | Input | { values, timestamps } | Signal series (e.g. momentum, factor score) |
| values | Output | (number | null)[] | Rolling IC in [−1, 1]; nulls during warm-up (period + lag bars) |
| timestamps | Output | number[] | Unix timestamps aligned to input |
Use Cases
Factor Validity Testing
Measure whether a factor signal actually predicts returns over time. If rolling IC is persistently near 0, the factor has no predictive value in this regime.
Regime-Adaptive Signal Weighting
Upweight signals with high rolling IC and downweight those with low or negative IC in a dynamic multi-factor model.
Strategy On/Off Filter
Only trade when rolling IC is above a minimum threshold — pause a signal-based strategy when the signal is no longer informative.
Tips & Best Practices
IC of 0.05+ Is Meaningful
In quantitative finance, an IC of 0.05–0.1 on 1-bar returns is considered good. IC > 0.1 is excellent. Don't expect IC near 1 from any real signal.
Use ICIR (IC / StdDev of IC)
Combine Rolling IC with Rolling Standard Error Pass to compute the IC Information Ratio — a measure of IC consistency, not just magnitude.
Longer Lag = Slower Signals
Increasing the lag parameter measures how well the signal predicts returns at longer horizons. Momentum signals typically show IC at lag=5–20 bars.