QCM NexusOne Insight # 9
SEPTEMBER 2025
Aref Karim - Ershadul Haq - Raami Karim
SIGNAL VS NOISE
TUNING OUT DISTRACTIONS, TUNING IN VALUE
The Information Avalanche
An investor always wants to make better decisions. And in today’s digital age, there is no shortage of information inputs to aid the process: economic data, earnings calls, policy speeches, tweets, real-time charts, on-going market predictions and breaking news headlines – the list never ends. But more information does not automatically mean better outcomes. In fact, the opposite is often true. Too much information leads to confusion, distraction, and reactive decision-making.
In financial markets, where clarity matters, the single biggest challenge is often not a lack of data – but rather the inability to filter signal from noise.
Defining Signal and Noise
In our complex world of finance, distinguishing between what truly matters and what merely distracts is an essential skill. Understanding the subtle difference between signal and noise can transform the way we interpret information and ultimately shape investment outcomes.
- Signal is information that has predictive or explanatory power. It is something that helps you make a better decision – consistently and systematically.
- Noise, on the other hand, is everything that feels important in the moment but lacks statistical or behavioural edge. It can be random price moves, speculative commentary, sensational headlines, or even correct data interpreted without context.
Noise is deceptive because it mimics urgency. It commands attention, creates fear of missing out, and forces knee-jerk reactions. Signal is quieter – harder to spot, slower to change, and grounded in structure, not spectacle.
The Psychology of Noise
Humans are not wired for uncertainty. We seek patterns, explanations, and stories – even where none exist. This creates several cognitive traps:
- Recency bias: Overweighting the latest event, even if irrelevant.
- Confirmation bias: Giving more weight to data that fits our views.
- Narrative fallacy: Believing stories that make sense, not data that proves otherwise.
- Overreaction: Making changes based on short-term volatility.
Media can quickly change market behaviour, prompting investors to act even when doing nothing may be better. Macro signals, on the other hand, wait for that behavioural change to show up in equities, bonds, currencies, and commodities. These broad, coordinated moves tend to be more reliable than isolated fluctuations.
Portfolio Design: The Hidden Cost of Noise
Noise is not just a distraction – it is a risk amplifier, a quantifiable source of portfolio risk.
When portfolios are adjusted based on noisy signals:
- Exposure becomes inconsistent
- Trades cluster around false breakouts or failed reversals
- Risk budgets are consumed by volatility rather than opportunity.
- Long-term performance is compromised by short-term overtrading
This is especially true in multi-asset portfolios, where many instruments can look active – but only a few are driven by real signal. Reacting broadly to noise introduces correlated mistakes.
Extracting True Signal
Systematic macro strategies are built to separate signal from noise by design. They are engineered ground up to:
- Filter inputs using well-tested factors or signal generators
- Require consistency and statistical backing
- Weight signals probabilistically, not emotionally
- Ignore headlines unless reflected in price, volatility, or correlation patterns
- Allocate risk based on validated signals – not speculation
NexusOne Insight: Tuning Into What Matters
At NexusOne, information density is embraced, not feared. But we do not treat all information equally. Our investment process is grounded in:
- Clear, validated signals — across macro, momentum, and mean-reversion
- A robust signal-weighting process based on strength, conviction, and market regime
- Adaptive rules that ignore noise and focus on how markets behave, not how they are expected to behave
- A structural commitment to disciplined execution, regardless of news flow
We are not trying to react faster; we are trying to react smarter — and only when the signals justify it. For us in the long run, it is not how much you know that matters; rather it is what you choose to ignore — noise.