Questions / Quant research, Take-home data cases
Rank IC of a signal
Signal and next-day return for five stocks are below. What is the Spearman rank correlation (the rank IC)?
stock,signal,fwd_ret
S1,0.5,0.4
S2,-0.2,0.1
S3,1.1,0.9
S4,0.3,-0.1
S5,-0.8,-0.6Answer it in the app It's free. You get hints, a second try if you miss, and a follow-up question.
Show the answer and worked solution
Answer: 0.9 correlation (9/10)
- Signal ranks 4, 2, 5, 3, 1.
- Return ranks 4, 3, 5, 2, 1.
- Σd² = 2; ρ = 1 − 6 × 2/(5 × 24) = 0.9.
Interview shortcut. Σd² = 2 → 1 − 12/120.
Takeaway. Rank IC is robust to outliers in either column.
In the app this has a follow-up where one thing about the setup changes. Try the follow-up.