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Quantitative Finance · Glossary

What is Cross-sectional z-score, rank transform?

Also known as: cross-sectional z-score · rank transform

Definition 6.3 Research Craft: Predictors, Backtests, Measurement, Portfolios · Chapter 6 — Anatomy of a Predictor

The cross-sectional z-score of a predictor on a date is its value minus that date’s mean across securities, divided by that date’s standard deviation, usually clipped at a few units. Its rank transform replaces each value by its rank on the date, scaled to lie in (−12,12)(-\tfrac12, \tfrac12).

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