By Shahil Kotecha, Prabhay Joshi and Del Hussain, financial services experts.
“The most valuable commodity I know of is information” – Gordon Gekko
Social media networks, such as Twitter, Facebook and LinkedIn, provide us with constant and direct access to the thoughts and ideas of millions of people around the world. This thinking is hugely valuable when it’s monitored, analysed and transformed to provide advantageous insights.
Companies across all industries have recently been realising the value of ‘social intelligence’. The interpretation of this big data has meant they are reaping the benefits of being able to understand their customers’ behaviours more clearly. The insurance industry, for example, has successfully used social analytics for fraud prevention and to improve the prediction of their customers’ risk estimates. Apple meanwhile, analyses Twitter feeds in real time and gleans customer sentiment and trends to strengthen its consumer propositions.
It's now the investment industry's turn to follow suit. Several institutions are already attempting to use social intelligence for real time identification of consumer sentiment towards an industry, geography or a particular company. Saxo Group, for example, has recently launched TradingFloor.com, which allows traders to follow each other’s thoughts. However, the sheer volume and complexity of the analysis has meant that any attempt to use social data in this way has been confined to a limited set of firms who have the right technology and expertise. Even less prevalent is the application of behavioural analysis to social data. When done accurately, this process can be a highly effective way to forecast likely consumer behaviours and, as a result, predict demand-driven financial market trends. Bridgewater, the world’s largest hedge fund, is already using Twitter feeds to model economic activity but the rest of the market is yet to follow suit.
The ability to mine this social data provides an unprecedented and pioneering method of validating investment strategies through the prediction of consumer behaviours:
Firstly, by collaborating with social data specialists, investment firms have the ability to identify emerging themes that exist in an investment portfolio and create a filtered feed of this social data. This can be achieved by establishing a bespoke algorithm, created to cut through the flood of potential data available and deliver the key social sentiment metrics associated with an investment portfolio.
Secondly, by applying advanced behavioural analysis, they are able to use this feed to create a social behaviour dashboard that correlates current sentiment indicators with future consumer behaviour predictions towards key sectors in financial markets. According to the study, “Twitter mood predicts the stock market”, Twitter sentiment correlates with the ups and downs of the next few days on the Dow Jones Index with 87 percent accuracy.
Lastly, analysing the results of the dashboard alongside existing methods of investment analysis provides a way of validating an investment strategy against a ‘live’ barometer of the consumer market.
Investment managers that build social intelligence into to their investment infrastructure early on will help close the gap between themselves and the likes of Bridgewater.
To find out more about how social intelligence could compliment your investment strategy, contact us now.