Hit rate (also called batting average) is the proportion of individual positions or bets that earn a positive return. A hit rate of 0.55 means 55% of positions are profitable over the measurement horizon.
Hit rate alone does not determine whether a strategy is profitable — what matters is the combination of hit rate and the magnitude of wins vs losses. A strategy can be highly profitable with a 40% hit rate if winning positions are substantially larger than losing ones. Conversely, a 60% hit rate can still produce losses if the losing 40% of trades are outsized.
In cross-sectional signal research, a signal with positive IC will exhibit a hit rate slightly above 50%, but typically only by a modest margin. The relationship between IC and hit rate depends on the return distribution: under normality, hit rate ≈ Φ(IC / σ), where Φ is the normal CDF and σ is the cross-sectional return dispersion.
Hit rate is most informative when combined with the payoff ratio (average win / average loss) and profit factor (total gross profit / total gross loss) to assess the full shape of the return distribution.