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Sentiment Analysis - Where it works

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Transcript of Sentiment Analysis - Where it works

The
VIX
(CBOE volatility index) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatility of a wide range of S&P 500 index options.
Sentiment Analysis works best with
Small Cap stocks
'Small Cap'
Refers
to stocks with a relatively
small market capitalization.
The definition of small cap can
vary among brokerages, but generally
it is a company with a market
capitalization of between $300
million and $2 billion.
Favourable Sectors
Pharma
Banking
stocks with low beta
Beta
is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0.
When VIX is low
When markets are improving
Being market-neutral
Unscheduled news events (vis-a-vis scheduled news events)
Hard news (vis-a-vis soft news)
Doing fewer stock, but those
with stronger signals
Sentiment Analysis
What is sentiment analysis?
Sentiment Analysis, also known as opinion mining, is the process of computationally identifying and categorizing opinions expressed in a piece of text, especially in order to determine whether the writer’s attitude towards a particular topic, product, etc. is positive, negative, or neutral.

The analysis finds significant prominence in social media, stock markets, law, policy making, sociology and even customer service.
Small cap companies react more strongly to news sentiment as compared to mid cap or large cap companies. negative news attracts more attention from journalists giving it more media coverage.
low volatility stocks have the strongest reaction
to positive sentiment, while high volatility
stocks have the strongest reaction to
negative sentiment.
Unscheduled news appears over unstipulated time frame, and are difficult to process quantitatively. Hence, to be used wisely to generate decision signals, they have to be processed in an appropriate input time series.
News Analytics works best with
Small Cap companies
Sectors like pharma, banking, etc
Stocks with low beta
When VIX is low
When markets are improving
Hard news (vis-a-vis soft news)
Unscheduled news events (vis-a-vis scheduled news events)
Being market-neutral
Doing fewer stock, but those with stronger signal
In Summary
positive sentiment stocks outperform negative ones.
Industries where sentiment works well have high coverage
or higher news frequency related to them.
Automobile
Oil & Gas
Source : Trading Strategies to Exploit News Sentiment – Wenbin Zhang & Steven Skiena
In industries like
Sample output on news analytics feed
Source: Paul Tetlock, Maytal SaarTsechansky, and Sofus Macskassy, “More Than Words: Quantifying Language (in Relating News Analytics to Stock Returns, Leinweber & Sisk, CARISMA, London, Feb. 2010 5 News) to Measure Firms’ Fundamentals,” Journal of Finance 63 (June 2008): 1437–1467.

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