Tuesday, July 7, 2015

Using Sentiment to Create Theme-based Alphas

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Using Sentiment to Create Theme-based Alphas
Most sentiment analytics providers simply tell you a piece of information, or a day’s worth of information, is positive or negative. Indeed, in our past research, we have used simple aggregate measures of sentiment like moving averages. But stock prices do not react uniformly to sentiment across corporate event types. So, when building trading signals, it may be more profitable to treat sentiment thematically.
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To address this hypothesis, we conducted a study in which we dissected sentiment into event themes, according to RavenPack’s event taxonomy, identifying how the sentiment signal decays by event type. As part of our research, we considered the results by company size and region. In this particular paper we only looked at the performance of each theme-based indicator, but in future, this information could be used when deciding on the directionality of investing and/or holding periods related to the sentiment of particular event types.

You can request the full paper from our website.

The highlights of our findings included:

Monday, June 8, 2015

Apple Needs Good News From WWDC To Match Price Momentum

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Apple Sentiment

Apple’s Worldwide Developers Conference kicks off in San Francisco Monday and it’ll be keenly watched by Apple fans and analysts alike for new product launches and enhancements. Positive news is definitely needed by Apple because sentiment momentum has lagged price over the last month or so.

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Figure 1 below shows the relative strength indicators (RSI) of Apple’s sentiment, derived from RavenPack News Analytics, against price RSIs. As you can see, shorter-term price momentum spiked into overbought territory late May and this wasn’t fully supported by a run higher in sentiment strength. That short-term move in price momentum is reflected in the longer-term price momentum edging higher. But there’s no corresponding move in sentiment.

Friday, May 15, 2015

At Face Value, US Q1 Earnings Surprise Not Supported By Sentiment

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Earnings Picture

US first quarter earnings season is pretty much over so let’s take stock from an news analytics perspective. As pointed out by our partners, FactSet, the earnings surprise percentage so far this earnings season has been higher than average and potentially the highest since Q1 2011. Have we seen this in the news sentiment analytics?

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No. Although it has been a busy quarter in terms of media coverage of earnings and revenue events, relative sentiment remains slightly negative. That said, relative sentiment has picked up over the last couple of weeks.

Figure 1 shows the count of detections of these two event groups (the blue bars) for the US market as a whole. This measure of media attention for revenue and earnings has been the highest of the last year.
Figure 1: US Earnings & Revenue Sentiment RSIs & Media Attention

Wednesday, May 6, 2015

News Sentiment Helps Pick Turning Points In Price Momentum Factors

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Factor investing is a term in more or less every portfolio manager’s vocabulary these days, but all managers face the challenge of understanding when risk premiums associated with traditional factors can be harvested and when they can’t.

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A large corpus of academic research, spanning more than 40 years, has highlighted the existence of long-term risk premiums linked to factors such as value, low size, low volatility, high yield, quality, and momentum. For instance, the concept of Value investing is to look for stocks that have low prices relative to their fundamental value – commonly captured by a high book-to-price or earnings-to-price ratio (amongst other measures).

Friday, March 13, 2015

US Dollar’s Momentum Not Matched By News Sentiment

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US Dollar Index DXY Sentiment

Is the dollar’s strength in the last three weeks matched by an increase in sentiment toward the US economy? Not according to RavenPack’s measures of relative sentiment momentum.

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The relative strength indices of the US dollar index (DXY) – over 14 and 30 days – have extended toward or well into overbought territory, see figure 1, while sentiment momentum across all macroeconomic and geopolitical topics – which includes business, economic, social, environmental, political events – is steady just above the neutral level.

Figure 1: US Dollar Index vs US All Macro Sentiment RSI

Monday, March 9, 2015

Apple Watch Hype Has Not Lifted Sentiment

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Apple Sentiment

In just an hour, at 5pm GMT Monday, the Apple Spring Forward event kicks off in San Francisco. The new Apple Watch is expected to be on show. The media has been in a frenzy over the last week or so, speculating what the watch will be capable of, how long the battery will last and so on.

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You would’ve thought all that hype would have lifted Apple’s sentiment - which has been near flatlining for a few months now. But no, if anything it’s weighed on sentiment as you can see from figures 1 & 2, which show the relative change in sentiment vs the share price and the relative strength of Apple’s share price in figure 2.

Not much to conclude here, apart from maybe the market is expecting to be underwhelmed by the Apple Watch. Of course, there’s always the chance of Apple springing some cool surprises and that might be a catalyst to get the price moving again.

Wednesday, March 4, 2015

Adidas Sentiment Supports Optimists Ahead of Earnings

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Adidas Sentiment

Adidas shares have been on a tear since the beginning of the year and heading into Thursday’s earnings report there’s optimism that the sportswear maker will live up to its recent upbeat guidance and there’ll be an early CEO change.

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But there are sceptics given the lagging performance of 2014 which saw profit warnings and shareholder pressure for change at the top. In a research report last week Susquehanna Financial Group said it was looking for continued signs of sales and margin improvement with the latter pressured by heightened competition in the Russian and North American markets. It also intimated an external appointment as CEO would be welcome.

Well, RavenPack sentiment appears to agree with the optimists. Sentiment momentum is positive with the 90-day RSI of sentiment heading higher since the turn of the year and the 14-day RSI holding well above the longer-term measure. See figure 1.
Figure 1: Adidas Price vs. Sentiment RSIs