Signal Sign Conventions

A sign convention is the agreed rule that a positive signal value always means "expect this stock to outperform" and a negative value always means "expect it to underperform", applied consistently across every signal a research pipeline touches. It sounds trivial, but signals arrive from wildly different sources (accruals, short interest, analyst revisions, momentum) and their raw, natural units point in inconsistent directions: high accruals historically predict lower future returns, while high momentum predicts higher future returns, so a "high value" is bullish for one and bearish for the other.

The fix is to flip signs at the point each signal is defined, so that downstream code, combining signals, computing information coefficients, sizing positions, can always assume "bigger number, more bullish" without checking each signal's origin story. Skipping this step is a common silent bug: a signal combiner or optimizer that adds a mis-signed component in with the wrong sign doesn't crash, it just quietly cancels out real alpha or actively works against it.

Worked example. A pipeline combines a momentum score (raw: positive = bullish, correct convention already) with an accruals score (raw: high accruals = bearish, so it must be negated before combining). If the accruals score is fed in unflipped, the combined signal effectively double-counts against high-momentum, low-accruals names, the two components partially offset instead of reinforcing, and a backtest of the combined signal shows a weaker information coefficient than either signal alone, a classic symptom traced back to one un-flipped sign.