Pairs trading Neural Networks
I was recently reading about Derwent Capital. When I say reading I mean mostly skimming headlines and ‘’Key Wording’’articles.This constitutes reading in our brave new world.
But back to Derwent or the ‘’Twitter Hedge Fund’’ as they have become known as. By taking a 10% sample of daily tweets Derwent attempt to ascertain the mood and sentiment of the population. They believe that by knowing if the cats going to get kicked when you get home may help them predict which way the market is going to go in the next few days. Brilliant!
After a quick internet search it turns out that quite a bit of research has gone into market psychology, opinion mining, efficient markets and irrational humans. I tried reading a few of the papers but was bored instantly. I expect they discovered that it does not work. That, or they are all billionaires now...But this Derwent thing got me thinking and even kept me up at night for about 5 minutes .
My big idea is this: What if you could build a chart that uses sentiment instead of price? Yes I know these charts exist already in the form of business and consumer confidence surveys etc... BUT what if you could search for key words across Twitter and Facebook, use Google search volumes and Google Trends and by using different weightings on your data input the values into a model that would give sentiment in a SPECIFIC security a value? Would my ‘sentiment chart’ mirror the price chart? You would think it should. Good sentiment=market up, bad sentiment=market down.
Source: The Critical Masses
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