# Residual normalization — findings

**2026-09-08: closed negative at the signal screen. Keep production unchanged.**
The proposed normalization did not meet the rule frozen in
[the experiment protocol](residual-normalization.md), and its point estimates
did not improve on the current momentum signal. No portfolio replay was run:
the protocol requires a passing signal screen before that stage.

The candidate used the production SPY-adjusted 12-1 return sum divided by sample
standard deviation of the same 231 daily adjusted returns. All comparisons used
identical as-of dates and 30-SPY-session forward-return endpoints. No new factor,
lookback, volatility weight, sizing rule, or exit was tested.

| Era | Non-overlapping windows | Current signal, matched coverage | Normalized signal | Difference |
|---|---:|---:|---:|---:|
| Full period | 73 | 0.01446 | 0.01284 | -0.00162 |
| Before 2021 | 30 | 0.00776 | 0.00496 | -0.00280 |
| From 2021 | 42 | 0.02377 | 0.02259 | -0.00118 |

Values are mean **Spearman information coefficients (IC)**: how well signal
ordering agrees with subsequent stock returns. They are neither Sharpe ratios
nor trading returns. Higher is better for this positive-momentum hypothesis.
The candidate needed full-period IC >= 0.03, at least 12 windows, and positive
mean IC in both eras. It passed the count and era-sign conditions but failed the
0.03 threshold. The rule was evaluated before rounding.

The paired normalized-minus-current IC difference has a 95% moving-block interval
of **[-0.00496, +0.00156]**. This spans zero: the study does not establish that
normalization is worse, and it supplies no convincing improvement evidence.
The mean top-minus-bottom-quintile 30-session return spread also fell, from
**0.967% to 0.751%**. That is an unconditional diagnostic, not the P&L of the
long-only, gated, capital-constrained production book.

**Coverage and checks**

- The snapshot completion manifest matches 4,650 registry tickers, 5,081,073
  OHLCV rows, and 4,144 research-only names. The experiment used the remaining
  506 production-universe registry names, averaging 485.4 paired stocks per
  retained window.
- Actual retained as-of dates run from **2017-01-06 to 2026-05-01**; the final
  forward endpoint is **2026-06-15**. Later dates cannot necessarily add another
  complete non-overlapping 30-session window. SPY history starts in January
  2016, so a full one-year signal cannot start in July 2016.
- One retained window crosses the 2021 boundary and belongs to the full-period
  result only, explaining why the era counts sum to 72 rather than 73.
- The unrestricted production control had **35,441** retained stock/date cells;
  paired control and treatment each had **35,433**. Its mean IC was 0.01447,
  essentially the same as paired control. Coverage restriction did not account
  for the observed result.
- Numerator parity was checked against the production implementation on each
  eligible evaluated cell. The snapshot and frozen source hashes were unchanged
  across the run. SQLite was opened read-only.
- Twelve targeted tests passed, including numerical invariance, production
  parity, lookahead exclusion, zero-variance handling, missing-data pairing,
  calendar overlap, and an end-to-end screen check. Ruff passed for the runner
  and its tests. The existing Python runtime was usable outside the filesystem
  sandbox; no environment replacement was needed.

**Interpretation and decision**

My proposed mechanism was plausible but unsupported by this experiment. Do not
add normalization to production or search denominator variants on this history.
This ends this specific experiment, not all possible residual-momentum research.

The current signal also falls below 0.03 on this particular long-history screen.
That cautions against treating its predictive evidence as universally strong;
it does not by itself measure or invalidate the complete production book. The
unconditional universe, true session spacing, dates, and return objective differ
from earlier setup/portfolio studies. Historical constituents are still projected
backward, this history has already been inspected, and the bootstrap intervals
remain exploratory. No new CAGR, drawdown, cost-stress, or live result is claimed.

**Artifacts:** [machine-readable results](../../reports/residual-normalization-20260908.json),
[generated tables](../../reports/residual-normalization-20260908.md),
[runner](../../scripts/run_residual_normalization.py), and
[tests](../../tests/unit/test_residual_normalization.py).