Case Studies
We have sentiment analytics for 8,500+ stocks and ETFs representing over 80% of the liquidity of the US equity market. Here are case studies of how we correctly detected events and also provided continuous predictive analytics for selected assets.
SPY OPEN-TO-CLOSE STRATEGY PERFORMANCE, 2014
Summary: iSENTIUM’s Open-to-Close (OTC) strategy on SPY returned 29.76% (before cost) over 2014 with a Sharpe Ratio of 3.1. Over the same period and trading hours, the SPY ETF returned 13.46% with a Sharpe Ratio of 1.2. The OTC strategy had a hit rate of 59% in successfully predicting market direction.
The OTC strategy consistently predicted medium and long-term turning points in the US equity market, in particular turning bearish a few days before significant market sell-offs in March and July. The strategy was long 56% of trading days in 2014, and its daily returns were 42% correlated with those of SPY.
Strategy Details: iSENTIUM’s OTC strategy uses sentiment to predict intraday price moves in SPY. The strategy takes a direction – either long or short – at 9:31AM each trading day and holds the position until 3:40PM. It uses sentiment alone, ignoring all other inputs including price. The performance has been completely out-of-sample since September 2012, and the OTC daily trades are emailed out each morning since the beginning of 2013.
The OTC strategy uses lagged sentiment as an input to predict daily asset returns. It employs a dynamic regression model to learn the relationship between the 10-day exponential moving average of sentiment (with 1 and 2-day lags) and the price return of SPY between 9:31AM and 3:40PM. For more details and source code on the strategy, or to be added to the daily OTC distribution list, please contact sales@isentium.com.
Sentiment and Fed Announcements
Summary: iSENTIUM’s data is a highly relevant determinant of market moves after Federal Open Market Committee (FOMC) rate announcements, predicting market reactions with a 75% accuracy rate in 2014. This predictive effect persists for hours to days after announcements, and it is consistent across a range of assets including SPY, IWM, and VXX. With the increasing relevance of central bank policy for global financial markets, the informational advantage provided by iSENTIUM sentiment ahead of policy decisions can be extremely valuable for alpha capture and risk management.
Study Details: In this study we compare the sentiment of 3 ETFs over the hour preceding FOMC rate decisions to their corresponding price moves immediately after. We use sentiment from 1:00PM to 1:59PM and price moves between 30 minutes and 5 days after the announcement time. This chart shows percent accuracy – the probability of sentiment direction predicting price change direction – and average return in the direction of sentiment for all eight FOMC announcements in 2014. (Tweet volumes are insufficient prior to 2014 for meaningful analysis).
The predictive power of sentiment in 2014 is further supported by the results of the iSENTIUM Open-to-Close (OTC) daily trading strategy on SPY, which used the same raw sentiment data to generate 30% out-of-sample performance for 2014 with a Sharpe Ratio of 3.1. Sentiment around FOMC announcements is marked by above-average tweet volumes, which may explain its particularly strong predictive power during the periods referenced in this study.
October 9, 2014
RMD (ResMed Inc) – Unusual news today in the healthcare space as an anonymous report was published online alleging fraudulent accounting by the $7bn medical equipment company ResMed. The news was leaked on Twitter shortly after 11:00AM, and the burst of negative sentiment produced a bearish iSENSE alert at 11:14AM. Despite the serious allegations and the seeming validity of the report, it took the market over an hour to react – it was not until 12:45PM that RMD sold off, coincident with a huge increase in tweet volume as the news went viral. Providing over an hour of lead time, the bearish iSENSE alert would have returned 2.8% through the end of day and over 4% at its intraday peak.
October 21, 2014
OCN (Ocwen Financial Corp.) – Ocwen Financial today plummeted after the NY Department of Financial Services issued a scathing letter accusing the mortgage lender of backdating thousands of letters to mortgagers and possibly leading to unjust foreclosures. Twitter volumes exploded on the news, which was released just after noon. Immediate and overwhelming negative sentiment generated a bearish iSENSE alert at 12:10PM. OCN was down almost 20% intraday and closed down 9.3% from the alert event.
November 12, 2014
TWTR (Twitter, Inc.) – Twitter’s first analyst day commenced this morning in San Francisco, with investors awaiting new strategy and product developments for the social media platform that might reverse a worrying recent slowdown in user growth. The first announcement – an “Instant Timeline” feature that will auto-generate content for new users – was received with overwhelming positive sentiment and a strong surge of tweet volume. The activity generated a bullish iSENSE alert at 12:30PM; TWTR rallied through the afternoon to close up 4.6% from the alert event.
November 17, 2014
ACT (Actavis plc) – Actavis succeeded in a takeover bid for the pharmaceutical Allergan, in a cash and stock deal announced this morning valuing Allergan at $66 billion. The acquisition ended an unsuccessful campaign by Valeant Pharmaceuticals, backed by Bill Ackman’s Pershing Square Capital, to orchestrate a hostile takeover of Allergan, the Botox manufacturer whose shares have gained almost 100% on the year. Overwhelming positive sentiment on the news created a bullish iSENSE alert in the early morning, driving a rally in ACT that faltered midmorning when sentiment weakened and eventually reversed to negative. A bearish iSENSE alert was generated at 10:43AM, and ACT sold off an additional 2.1% on the day
November 18, 2014
KO (The Coca-Cola Company) – Commentary on Coca-Cola surged this afternoon on Twitter after a Brazil news magazine reported that 3G Capital, the Brazilian investment firm that owns Burger King and invested in Heinz with Warren Buffett, is launching a new fund for potential acquisitions in the US food and beverage industry. Although the report initially came out last Friday, the renewed interest today drove overwhelming positive sentiment and created a bullish iSENSE alert at 2:22PM for Coca-Cola. After a quiet morning session, KO spiked up immediately after the alert – rallying almost 1% through the close.
November 19, 2014
MAC (The Macerich Company) – Simon Property Group, the $56 billion real-estate investment trust and largest US mall owner, announced this morning it had accumulated over 3% of the outstanding shares of its rival Macerich. Tweet volumes surged for the usually quiet Macerich, with consistent positive sentiment generating a bullish iSENSE alert at 12:28PM ahead of a parabolic 5% rally as commentators on Twitter speculated on a potential takeover. Just as quickly, however, sentiment reversed: a burst of negativity at 2:32PM caused a bearish iSENSE alert just when the stock topped. MAC proceeded to sell off an additional 3% through the afternoon.
November 20, 2014
INTC (Intel Corporation) – At its 2014 investor meeting today, Intel increased its quarterly dividend and raised forecasts for 2015, citing a renewed commitment to the technology firm’s core PC manufacturing operations while it expands into mobile offerings. Recent losses from capital expenditures in the mobile business have worried investors, although today’s announcement generated a surge of positive sentiment and created a bullish iSENSE alert at 12:39PM. INTC continued to rally through the afternoon, closing up over 3% from its price at the time of the alert.
November 20, 2014
DDS (Dillard's Inc.) – Marcato Capital, the activist hedge fund with a 5% interest in Dillard’s, released a statement this morning advocating the spin-off of the retailer’s real-estate assets into a separate investment trust, a move that Marcato claims could increase Dillard’s market value by as much as 75%. Although commentary on Twitter was skeptical of the strategy, the initial reaction was one of predominantly positive sentiment with such strong volume as to produce a bullish iSENSE alert at 11:46AM. DDS traded as high as up 5.5% before closing up 2.9% from the alert time.
December 2, 2014
MA (MasterCard Incorporated) – Mastercard announced midday that its board had approved a $4 billion share buyback program and an increase in its quarterly dividend from 11 cents to 16 cents. The two pieces of news generated a surge of overwhelming positive sentiment and created a bullish iSENSE alert at 12:27PM for the financial payments firm, which has experienced strong price performance since beating expectations for Q3 results. MA closed up almost 1% from the alert time.
December 19, 2014
CCL (Carnival Corporation) - Carnival Corporation reported a net loss in its quarterly earnings report this morning, although narrower than the loss analysts had been estimating from the operator of Carnival Cruise Lines. Despite posting weaker-than-expected revenues and lowering guidance for Q1 2015 earnings, and despite a brief sell-off in the stock after market open, reaction to the news was largely positive. A surge of predominantly positive sentiment created a bullish iSENSE alert at 9:43AM almost exactly as CCL bottomed for the day – the stock went on to finish up 2.1% from its price when the alert was generated.
