AppliedNumeric answerFree solution

Your information coefficient is fixed and you want to double your information ratio. By what factor must independent breadth rise?

Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.

Show the answer and worked solution

Answer

44

Since IR∝BR\mathrm{IR} \propto \sqrt{\mathrm{BR}}, doubling the ratio needs k=2\sqrt{k} = 2, so breadth must rise fourfold. The asymmetry against improving the signal is the practical point: a doubling of the information coefficient also doubles the ratio, but doubling a real coefficient is far harder than finding four times as many independent places to apply the one you have. That is why research effort tends to flow towards universe expansion and faster horizons rather than towards better forecasts.

Worked solution

  1. Formula
    IR∝BR\mathrm{IR} \propto \sqrt{\mathrm{BR}}
  2. Substitute
    2=k2 = \sqrt{k}
  3. Solve
    k=4k = 4
  4. Answer
    4×4\times

Takeaway: Doubling the information ratio takes four times the breadth.

Answer it in practice – your answer is marked and recorded.

Reported in interviews at

Two Sigma, AQR

More alpha and signal research questions

Your information coefficient is fixed and you want to double your information ratio. · QuantMax