Using Bluemix to Find Alpha in Unstructured Data

8/18/2019 Using Bluemix to Find Alpha in Unstructured Data

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Using Bluemix to Find Alpha in Unstructured Data

Prashant Bhuyan, Co-Founder

IBM Interconnect– 2016


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What is Alpha Modus?

An investment technology company founded in 2014 to find aunstructured data and reprice investment advice


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What is Alpha?

! Risk adjusted return in excess of a benchmark

! Compounding growth with low volatility

! More alpha = faster growth


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Re-pricing Investment Advic

! Underperformance

! Negative alpha

! Disproportionate fees

Investors should only pay for alpha!


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Why is Generating Alpha So Diffi

“Every day we create 2.5 quintillion bytes of data!So m90% of the world’s data has been created in the last 2 yealone.” (IBM)


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Too Much Noise

! Traditional methods don’t work

! Markets increasingly driven by psychology

!

Identify cognitive biases and trade against them


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What Alpha Looks Like


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Are Imbalances Predictive?

!

Can imbalance indications predict market direction intoclose of trading? (Original question posed ~5 years ago

" "


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An Imprecise Predictor


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More Sophisticated Question

!"#$%#&'( *+,-

!"#$%&'$()(* ,&-. '/%$ 0/#.&0)12-$3 45$0)/(0 50&(* 675$'&" 2(3 82-0/(9


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Does News Sentiment ImprovAccuracy?

http://www.federalreserve.gov/monetarypolicy/fomcminutes20150729.htm Federal Open Market Committee

https://www.markiteconomics.com/Survey/PressRelease.mvc/7ceb45947dbf4d4f9b56e9d0c7439c41http://www.cbsnews.com/news/this-morning-from-cbs-news-august-24-2015/

http://www.cesifo-group.de/ifoHome/facts/Survey-Results/Business-Climate/Geschaeftsklima-Archiv/2015/Geschaeftsklima-20150825.html

. . .

! Build a sentiment parser using Alchemy

!

Do imbalances & negative news predict the direction oS&P 500 better than imbalances alone?

! Build a corpus of news articles related to the stock ma


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Build a Sentiment Parser (Step

! Select Node.js platform to build sentiment parser


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Sentiment Parser (Step 2)

! Select Command Line Interface


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,-- ./012345 65742.568 ./190:75 756/:7.56


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Formal Hypothesis

!

Null Hypothesis:

Negative news and negative imbalances do not predict markdirection into the close better than the 1 factor imbalance mo

!

Alternative Hypothesis:

Negative news and negative imbalances do predict market dinto the close better than the 1 factor imbalance model.


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Collect Sentiment Data

! Extract keywords, relevance and sentiment

! Map (negative, positive) sentiment to (-1, 1)

! Weight keyword sentiment by relevance


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Build Explanatory Factors

! Average relevance weighted negative sentiment (per d

! Negative keyword count

! Market on close imbalances


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Build a Multi-Factor Model

!

Multi-factor model:

!

Reduce dimensionality & co-linearity using PCA:


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550% More Accurate

!

2-factor model using principal components:

! 2-factor model explains > 55% of variance in response vari

! Reject null hypothesis: Negative news and imbalances are predictive of market direction into the close than imbalance


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Weak Market

!

General market falling sharply into close (Feb 5, 2016)


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Key News Items

!

Relations extracted from a news corpus using Alchemy


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Keyword Sentiment

! Extracted relevance weighted keywords

! Weighted sentiment in “gold” is strong indicating flight


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Making Money

:/% &(;/%'2)/( #5%#/0$0 /(7


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Takeaway

!

$64 trillion asset management has gone cognitive

! Asset managers are drowning in information

! IBM’s cognitive apps unleash the creativity required to find alpha


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THANK YOU!

Prashant B. Bhuyan

Alpha Modus

Co-Founder & Chief Technology Officer

[email protected] @Prashant_Bhuyan

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Using Bluemix to Find Alpha in Unstructured Data