# Information coefficient

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{{Short description|Measure of prediction's merit in finance}}
The '''information coefficient''' ('''IC''') is a measure of the merit of a predicted value.  In [finance](/source/finance), the information coefficient is used as a performance metric for the predictive skill of a [financial analyst](/source/financial_analyst).<ref name=Investopedia>{{cite web|url=http://www.investopedia.com/terms/i/information-coefficient.asp#axzz22Qau39ZX |publisher=Investopedia |title=Information Coefficient – IC |accessdate=August 3, 2012}}</ref>  The information coefficient is close to [correlation](/source/correlation) in that it can be seen to measure the linear relationship between two [random variable](/source/random_variable)s, e.g. predicted stock [returns](/source/rate_of_return) 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.<ref name=Investopedia /><ref>{{cite journal|title=Measuring Investment Skill Using The Effective Information Coefficient |author=Dan diBartolomeo |journal=Journal of Performance Measurement |year=2008|url=http://www.northinfo.com/documents/327.pdf |format=pdf |accessdate=August 3, 2012}}</ref>

== See also ==
* [Information ratio](/source/Information_ratio)

== References ==
{{Reflist}}

Category:Financial economics

{{Finance-stub}}

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Adapted from the Wikipedia article [Information coefficient](https://en.wikipedia.org/wiki/Information_coefficient) by Wikipedia contributors ([contributor history](https://en.wikipedia.org/wiki/Information_coefficient?action=history)). Available under [Creative Commons Attribution-ShareAlike 4.0 International](https://creativecommons.org/licenses/by-sa/4.0/). Changes may have been made.