InsidersTradesSigma
Quantitative Signals & Scoring
A quantitative signal whose strength or weight is inversely adjusted by the realized or implied volatility of the underlying security to normalize conviction across varying market conditions.
Volatility-scaled signals reduce false positives in high-volatility regimes by dividing raw signal scores by a volatility measure, typically rolling realized volatility or implied volatility (VIX equivalent). This adjustment ensures that identical insider activity patterns, market microstructure anomalies, or momentum factors receive proportionally lower conviction scores when the underlying asset exhibits elevated price noise, thereby improving signal stability across market stress periods and low-liquidity windows.
In insider-trading detection systems, volatility scaling is particularly valuable because trading volume spikes and price movements by corporate insiders may coincide with elevated market volatility. By normalizing signals to volatility regimes, the platform distinguishes genuine informed trading from routine portfolio rebalancing occurring during market turbulence. This technique also enhances information-coefficient stability and reduces time-series overfitting when backtesting conviction scores across multiple volatility clusters.
Formula