Full Factor IC Test

Test period: 39 trading days, holding period: 21 days, universe: 503 stocks.

FactorIC MeanICIRp-valueLong-ShortSignificant
EP (Earnings Yield)-0.062-0.7420.00005+3.87%⭐
BP (Book-to-Price)+0.006+0.0780.635+0.82%
FCF Yield-0.059-1.4260.000+3.04%⭐
ROE-0.041-1.2300.000+1.11%⭐
Momentum+0.224+2.6970.000-8.07%⭐ Monotonic
Volatility+0.132+1.0510.000-7.61%⭐
Size+0.048+1.2500.000-2.06%⭐

Key Readings:

  • Momentum dominates. ICIR of +2.70 is in a league of its own among all factors, with a 100% IC positive rate — momentum strategy contributed positive IC every single day over the past 39 trading sessions. Quintile sorting is perfectly monotonic: Q5 (strong stocks) averaged +7.95%, Q1 (weak stocks) slightly down at -0.12%, long-short spread -8.07% (negative sign indicates Q5 outperformed Q1).

  • Value factors collectively negative. EP (IC -0.062), FCF Yield (IC -0.059), and ROE (IC -0.041) all show negative and statistically significant IC. This means high-valuation stocks systematically outperformed low-valuation stocks recently — a classic growth-over-value regime. BP is the only non-significant factor (p=0.635); book value has almost no explanatory power for returns.

  • Volatility factor positive. IC +0.132, ICIR +1.05. High-volatility stocks underperformed recently (Q1 only +0.54% vs Q5 +8.15%), long-short -7.61%. The positive IC implies high-vol → high-return, which is opposite to the traditional low-volatility premium — more consistent with a risk-on environment.

  • Large caps lead. Size factor IC +0.048, ICIR +1.25, but modest magnitude (long-short only -2.06%).

Factor IC

Sector Momentum Breakdown

Momentum factor decomposed by GICS sector to examine within-sector momentum strength:

SectorStocksIC MeanICIRLong-ShortMonotonic
Information Technology73+0.524+2.584-28.54%⭐
Financials76+0.309+2.626-7.19%
Industrials79+0.266+2.878-7.14%⭐
Consumer Discretionary48+0.252+2.110-6.21%⭐
Consumer Staples36+0.209+1.341-4.67%
Utilities31+0.199+1.007-0.63%
Real Estate31+0.124+0.840-3.83%
Health Care59-0.128-1.206+7.51%

Sector Interpretation:

  • IT momentum off the charts. IC +0.524 is the highest across all sectors, ICIR +2.58, long-short spread -28.54%. Q5 (strong IT stocks) averaged +27.19%, Q1 (weak IT stocks) declined -1.35%. The dispersion within tech is extreme — chasing strong tech stocks has been enormously rewarding. However, a -28.54% spread also means that any reversal will produce sharp drawdowns.

  • Financials and Industrials follow. Financials ICIR +2.63, Industrials ICIR +2.88, both with 100% IC positive rate. These cyclical sectors show robust momentum effects, consistent with the ongoing economic expansion narrative.

  • Health Care is the sole reversal. IC -0.128, ICIR -1.21 — momentum is inverted in Health Care. Weak healthcare stocks outperformed strong ones, long-short +7.51%. This typically occurs during defensive rotation phases, where capital rotates from high-flying to laggard names within the sector.

  • Utilities and Real Estate momentum is weak. ICIR of only 1.01 and 0.84 respectively. Interest-rate-sensitive sectors are not responsive to price momentum.

Sector Momentum

Summary

The current factor environment is clear: momentum-led, growth over value, large over small. These three directions consistently point to one market regime — capital concentrating in strong leaders, chasing trends rather than mean-reverting.

Warning Signs:

  1. IT sector momentum IC of 0.524 is an extreme reading historically. This level is often associated with crowded trades; reversal risk increases with time.
  2. Value factors are comprehensively negative and statistically significant. If a style rotation occurs, the recovery potential for value factors is meaningful.
  3. Health Care’s momentum reversal is an independent signal — watch whether it spreads to other defensive sectors.

No anomaly alerts. All factors within normal volatility range.