Emotional Data Intelligence
Artificial Intelligence powered investment strategies
ANNOUNCEMENT
New premium service for IB customers
Trading Signals generated by Stockpulse's Artificial Intelligence
Starting in May 2022, Interactive Brokers offers their customers a new premium service. The new service is called "Morning Briefing" and is powered by Stockpulse.
Every trading day, subscribers get an AI automated report based on emotional data containing buy/sell signals for the most-mentioned stocks on social media.
The "Morning Briefing" extends the 4-year lasting cooperation between Interactive Brokers and Stockpulse.
To get access to the AI report, click on the link below.
The misconception between truly Artificial Intelligence sentiment-powered strategies and the so-called "AI sentiment" labeled strategies
This newsletter aims to map out the current landscape of AI-powered ETF or index concepts based on social media sentiment and NLP (Natural Language Processing). We see a persistent change in the landscape of ETFs and Indexes. Asset managers are pursuing innovative strategies to attract the retail community into investing in new and exciting asset classes. The latest trend to further diversify the product portfolio of asset managers are ETFs/indexes based on (social) sentiment analysis.
Social Media Sentiment analysis and why it is essential for the future
For years, analysts, institutional investors, professionals, and everyone in between relies on consumer sentiment to measure the economy's overall health based on consumer opinion. The economic indicator takes into account people's feelings towards their current financial health position and the short- and long-term vitality of the economy. Today, with the advancement of AI and Deep Learning methods, we should recognize and standardize the fact that retail trading sentiment offers a valid indicator of the health of financial markets.
Publicly known ETFs and Indices based on sentiment analysis
MEME ETF Ticker: MEME
S&P 500 Twitter Sentiment Index Ticker: SPSNTUP
VanEck Social Sentiment ETF Ticker: BUZZ – ISIN: US92189H8390
ACATIS AI BUZZ US EQUITIES Ticker: BUZZ – ISIN: DE000A2JF683
Europe Big Data Sentiment Index Ticker: BDX EUROPE – ISIN: DE000SLA7W00
Deutschland Top Aktien Index Ticker: TIXX – ISIN: DE000A26RWY8
Each approach uses sentiment/social media data in some form or another as an independent variable to predict future stock price movements. Since most providers of such products concentrate on data from a few sources, such as Twitter, Stocktwits, or Reddit, the general expectation is that the performance of these approaches should be very similar because the underlying data is the same. One question remains: Why do some of these approaches perform much worse than others, especially within the past six to 12 months?
Comparison of Approaches
The MEME Index consists of 25 equal-weighted U.S. listed equity securities that exhibit a combination of elevated social media activity and high short interest. Both are considered components of market sentiment. Under the high-pitched social media activity, the following can be understood, "the number of times a company or its ticker is mentioned on specific social media platforms." The data provider for the ETF, Quiver Quantitative, offers coverage of multiple social media platforms such as Reddit (especially /r/wallstreetbets), Twitter, Stocktwits, etc., which is considered to be advanced coverage of user footprint in social media. Looking at the current portfolio of the MEME ETF, it seems to be a list of most discussed stocks from the subreddit /r/wallstreetbets.
The S&P 500 Twitter Sentiment Index analyzes $cashtag Tweets, which include stock tickers such as $TWTR, to track sentiment for an index designed to reflect how the world's largest focus group is talking about the top publicly-traded companies (as represented by the S&P 500). The index is very broad and reflects the performance of the 200 constituents of the S&P 500, with the most positive sentiment on Twitter. This is a more conservative and simpler approach to display the sentiment of retail investors as this index is exclusively focused on Twitter-generated user data only.
VanEck Social Sentiment ETF (BUZZ) and ACATIS AI BUZZ US EQUITIES seek to track the price and yield performance of the BUZZ NextGen AI US Sentiment Leaders Index (BUZZTR). With intent is to track the performance of the 75 large-cap U.S. stocks, which exhibit the highest degree of positive investor sentiment and bullish perception. This is based on content aggregated from online sources, including social media, news articles, blog posts, and other alternative datasets.
Most discussed stocks on Reddit have high overlap with portfolios
As of February 28th, 2022, AMC Entertainment, Gamestop, Tesla, Palantir, and Apple are among the top holdings. All are (still) strongly discussed on the subreddit "wallstreetbets" or Reddit in general. The selection process seems to concentrate only on one or a very few sources similar to the MEME ETF. The chart shows the 20 most discussed stocks on Reddit in February 2022 (based on Stockpulse's data, pulled on March 17th, 2022). Fourteen out of the top twenty are currently in the portfolio among the top holdings of Van Eck Social Sentiment and ACATIS AI Buzz Equities indices. The ranking can be obtained by elementary counting of mentions of the companies in one or a few subreddits. It does not seem that "AI" plays an essential role in the selection process.
Stockpulse's Indices
Europe Big Data Sentiment Index (BDX) and Deutschland Top Aktien Index (TIXX) are indices based on data and analytics of Stockpulse. Stockpulse data collectors continuously scan myriads of different internet sources such as Reddit, YouTube, Twitter, Discord, Telegram, TikTok, Instagram, etc., for relevant financial topics, communication, and other unstructured data. Latest Artificial Intelligence, Machine Learning, and NLP methodologies are used to process and aggravate data quality and extract cryptic knowledge of raw and unstructured data sets into viable and understandable information. Stockpulse covers the entire value chain, from harvesting data, processing it, and transforming it into viable trading signals. Both of our indices focus on the European equities universe. Our AI actively manages the indices and rebalances them every quarter.
Performance Overview
Now that we have established the framework of the publicly known equities, we can compare their performance to each other.
Indices based on meme stocks are underperforming approaches that consider a broader sentiment spectrum. Only considering buzz (number of mentions) seems too volatile and straightforward. We need to take into account more factors to get sustainable signals. Stockpulse's approach uses an innovative Deep Learning approach to consider many factors, such as Key events, Sentiment, Buzz, and trend prediction, to generate signals that lead to a more sustainable approach. Also, the restriction on a certain universe seems helpful and does not follow bluntly the trends of most talked about stocks globally.
