Smart Machines for Smart Investors
By Gwenever Pacifico / July 12, 20213 min read
Artificial intelligence (AI) can give investment firms a competitive edge. By creating better predictions, and therefore, better results, AI can improve the way firms make decisions, execute trades, and manage client portfolios.
Smart algorithms can change the way investment managers look at companies. Because most businesses release their financial statements weeks after a quarter ends, it’s difficult to obtain real-time public information.
But with more companies accelerating their shift toward digitization, there is now a multitude of websites for AI to crawl, tracking metrics such as a brand’s consumer reviews, inventory levels, and pricing strategies. Algorithmic programs utilizing this data can indicate the probability of whether a company will be a good investment, quickly adjusting strategies and optimizing trades based on that data.
According to statistics portal, Statista, stock markets in the U.S. accounted for 54.5% of the world’s stocks in 2020, with over half of adults in America investing money in the stock market. Apollo Global Management valued the world-wide stock market at $95 trillion dollars.
With so much money on the line, AI-powered analysis has the ability to help investors maximize their returns while reducing their risk.
Artificial intelligence combined with human experts creates an investing dream team. By taking advantage of AI’s speed to analyze millions of data points in seconds, investors and money managers can make better strategic investment decisions.
Citi Treasury and Trade Solutions processes over 9 million trades globally per year. Before implementing AI, employees would have to review each trade manually, conducting time-consuming research to ensure the trades met regulatory compliance. Now, Citi leverages AI to conduct the research, providing employees the data they need in an easy-to-understand format, decreasing both human error and fatigue.
AI is also helping asset managers optimize their portfolio construction process. By utilizing AI’s data analysis and statistical models, managers can better predict future economic outcomes to help investors minimize risk in their portfolios.
Gopal Appuswami, Practice Lead at LatentView Analytics, explains that these data-driven analytics can track multiple economic indicators and regulatory trends “to produce insights and timely advice, which financial advisors can leverage to make proactive portfolio rebalancing recommendations or help customers build the right financial management solutions.”
The power of AI lies in its high-speed tracking and analyzing capability. This ability plays a crucial role in forecasting markets with greater accuracy and predicting future patterns.
Different Scenarios, Same Goal
While there are a multitude of strategies that can be implemented, all of them have one goal in common: maximizing returns. Smart machines can help investors increase their returns by analyzing data and calculating the probability of outcomes in real-time.
Trade Ideas, a stock market analysis company, utilizes an AI-powered self-learning trading platform named “Holly” to go through over a million different scenarios using dozens of investment algorithms to come up with the most optimal trading strategies.
The strategies with at least a 60% probability of success and a 2:1 profit/loss ratio are shared with traders the following day. In 2018, Trade Ideas’ stock market return was 16%, compared to the S&P’s return of negative 1.0%.
Asset managers can further leverage AI to forecast financial risk. Mark Antonio Awada, Chief Risk and Investment Sciences Officer at Alpha Innovations Global Investment, says, “historical and live time series data provide subtle clues and autonomous patterns that can be used to predict future patterns with strikingly high accuracy.” This pattern analysis can significantly improve an investor’s risk/reward ratio.
The ability to track and analyze data to forecast trading outcomes is not limited to numbers. Artificial intelligence can also understand and analyze human speech to predict market sentiments.
Understanding the Language of Investing
Online articles, reports, and press releases all provide vital information about how a company is performing. Artificial intelligence can use speech recognition and natural language processing (NLP) to save financial advisors and investment traders from the time-consuming task of sifting through conversations, notes, and financial reports.
Utilizing NLP, artificial intelligence can read, interpret, and understand human text to help investors gauge the sentiment in the text. Whether the tone in the news articles about a company is positive or negative can help predict how well that company’s stocks will do.
NLP can also detect relationships between companies called intercompany momentum. This focuses on how the price movement of a security might impact the price movement of other securities. Osman Ali, Managing Director at Goldman Sachs Asset Management, says, “these not-so-obvious relationships can be assembled from the clustering of companies in text-based data, appearing together in news articles, regulatory filings or research reports.”
Being able to analyze text is critical to making the best trading moves. With the average stock market return at 10%, investors that want a greater ROI need the right tools to make it happen.
Codazen Solutions: Investing in AI
Investment firms who seek a competitive edge can find it in AI. By helping stock traders and asset managers effectively analyze millions of data points in real-time, artificial intelligence can predict future trading outcomes to maximize returns while mitigating risks.
According to Michael Blum, one of our data scientists:
AI is one way investors can ease the uncertainty of Wall Street. That’s because using data along with modern algorithms has become a sophisticated way of making accurate predictions. Markets give us tons of data to use. It’s a no-brainer that AI has a firm place in investing.
At Codazen, our team of data scientists and software engineers works closely with you to create effective and customized AI solutions for your investment needs. We take pride in integrating data-driven technology with personalized strategies to reach client goals.
Contact us to learn more about how we can help you leverage the power of artificial intelligence for your investments.