Information Coefficient (IC) analysis of 23 backtestable financial factors across 11-16 years of NZX data.7 factors show statistically significant correlation with next-year stock returns (|t-stat| > 2.0).
Factors with statistically significant Information Coefficients (|t-stat| > 2.0). IC measures Spearman rank correlation between factor value and next-year stock returns.
Avoid high price-to-book — strongest signal on NZX
Favour high earnings yield (inverse P/E)
Positive earnings momentum predicts returns
Higher leverage historically correlated with returns
Avoid expensive enterprise value multiples
Avoid high price-to-earnings
Higher profit margins predict outperformance
Key finding: Value factors (low P/B, low P/E, high earnings yield) dominate on the NZX. Quality factors (F-Score, Z-Score) did not achieve statistical significance but may work better as avoidance signals. The NZX is a small market (~130 issuers) — factor persistence should be monitored.
Companies currently passing all screener thresholds: P/B < 2, P/E < 15, earnings yield > 5%, net margin > 5%, profit growth > 0%.
| Company | Sector | P/B | P/E | E. Yield | Net Margin | Profit Growth |
|---|---|---|---|---|---|---|
| Financials | 0.45 | 6.3 | 15.8% | 10.4% | +296.2% | |
| Financials | 1.72 | 7.5 | 13.3% | 14.1% | +12.6% | |
| Financials | 0.82 | 8.5 | 11.7% | 12.4% | +6.6% | |
| Consumer Discretionary | 1.07 | 9.2 | 10.9% | 6.0% | +32.0% | |
| Financials | 0.95 | 10.8 | 9.3% | 84.6% | +105.0% | |
| Consumer Discretionary | 1.12 | 14.1 | 7.1% | 7.0% | +93.6% |
Complete Information Coefficient results for all backtestable financial metrics. Green rows indicate statistical significance at the 5% level (|t-stat| > 2.0).
| # | Factor | Category | IC | t-stat | Signal | Years | Significant |
|---|---|---|---|---|---|---|---|
| 1 | P/B Ratio | Value | -0.149 | -3.40 | SHORT | 15yr | ✓ |
| 2 | Earnings Yield | Value | +0.131 | 2.86 | LONG | 16yr | ✓ |
| 3 | Net Profit Growth | Growth | +0.089 | 2.35 | LONG | 15yr | ✓ |
| 4 | Net Debt/EBITDA | Leverage | +0.141 | 2.20 | LONG | 11yr | ✓ |
| 5 | EV/EBITDA | Value | -0.142 | -2.08 | SHORT | 11yr | ✓ |
| 6 | P/E Ratio | Value | -0.078 | -2.08 | SHORT | 15yr | ✓ |
| 7 | Net Margin | Quality | +0.114 | 2.06 | LONG | 16yr | ✓ |
| 8 | ROE | Quality | +0.072 | 1.89 | LONG | 16yr | ~ |
| 9 | ROA | Quality | +0.065 | 1.75 | LONG | 16yr | ~ |
| 10 | Dividend Yield | Income | +0.061 | 1.68 | LONG | 16yr | ~ |
| 11 | Revenue Growth | Growth | +0.058 | 1.55 | LONG | 15yr | ~ |
| 12 | F-Score | Quality | +0.048 | 1.32 | LONG | 11yr | ✗ |
| 13 | Z-Score | Distress | -0.041 | -1.12 | SHORT | 11yr | ✗ |
| 14 | Current Ratio | Liquidity | +0.032 | 0.89 | LONG | 15yr | ✗ |
| 15 | Interest Cover | Leverage | +0.029 | 0.78 | LONG | 12yr | ✗ |
| 16 | EBITDA Margin | Quality | +0.025 | 0.71 | LONG | 16yr | ✗ |
| 17 | Payout Ratio | Income | -0.022 | -0.58 | SHORT | 16yr | ✗ |
| 18 | Debt/Equity | Leverage | +0.019 | 0.52 | LONG | 15yr | ✗ |
| 19 | EPS Growth | Growth | +0.015 | 0.41 | LONG | 14yr | ✗ |
| 20 | Free Cash Flow Yield | Value | +0.012 | 0.33 | LONG | 12yr | ✗ |
| 21 | Gross Margin | Quality | +0.008 | 0.22 | LONG | 16yr | ✗ |
| 22 | Asset Turnover | Efficiency | +0.005 | 0.14 | LONG | 15yr | ✗ |
| 23 | M-Score | Forensic | -0.003 | -0.08 | SHORT | 11yr | ✗ |
IC is the Spearman rank correlation between a factor's cross-sectional values at the start of a period and the corresponding stock returns over the next year. A positive IC indicates that higher factor values predict higher returns; a negative IC indicates the opposite.
t-statistics are computed from the time series of annual IC values. |t| > 2.0 corresponds approximately to the 5% significance level. With 11-16 years of data, the effective degrees of freedom are limited — factors with |t| between 1.5 and 2.0 are considered marginal.
Financial metrics from NZX annual reports (2010-2026). Stock prices from NZX daily close. Benchmark: FNZ ETF (Smartshares NZ Top 50).
Data sourced from publicly available records. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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