Can data lead the way in these unprecedented times?
April 4, 2020 by Chandini
Investment Managers can now act on critical information that impacts their investments, as soon as it is available, to capitalise on opportunities and hedge risks.
COVID-19’s unpredictable nature has impacted countless lives, and in the process, has thrown financial markets for a loop. Stock indices have plunged record amounts and there are endless unanswered questions for those watching the market — when will the virus stop spreading? When will shutdowns be lifted? Will the virus appear again next year?
At the moment, the usual, obvious data sets are unavailable for financial market watchers to parse through. Pandemic forecasting tends to operate off historical data, none of which is available on coronavirus. With limited testing facilities, there is also a lack of diagnosis data. That means that many of the usual predictors in financial markets — past experiences and intuition — might fail.
During times like these, I look to data science. What if we focused on the data streams we do have access to? One hedge fund manager obsessively watched the movement of a docked ship carrying lead concentrate to sell on the Chinese mainland — if it moved, he posited, markets were back in action. Another checked to see if air pollution levels over China were increasing — it would mean factory work would be in production.
Data science has already proven its muscle with helping understand the science behind the spread of the virus. Take, for example, Roni Rosenfield at the United States Center for Disease Control who has been enlisted to work on the coronavirus case. In an interview, he talks about the data sources he’s compiling: he’s decided to turn off the signals that have to do with social anxiety, like Twitter and Google searches. Instead, in the first week, his team has decided to use short-term time series forecasting, as well as what he describes as the wisdom of the crowd — a survey asks people across the country to map out the number of cases they think different states will have within a few weeks, based on prior data. The idea is that individual wisdom is rarely correct, but collective wisdom tends to veer toward the truth.
We’ve also been thinking about similar alternative data sources to answer burning questions for financial markets - What are the supply chain effects from shutting down the movement of people and goods? Which industries are impacted, which effects are cyclical and which are longer term shocks? Can we look at some novel data to find an answer? Here are some examples:
- We can parse consumer patterns like internet usage patterns, traffic data, social usage to measure when people are returning to normal lives from a lockdown. This information can be directly mapped onto expected demand of oil, the volume of food delivery, or the summer inventory of retail. This data can be used to predict which economies might open up first — and what industries might come back the quickest?
- We can parse public information on listed companies to extract every company's geographic exposure - where are its major suppliers, customers and operations. This can be overlaid on top of infection spread in a geography and resulting government policies to forecast what industries will change as a result of the global shutdown.
- We can analyse sentiment and velocity of different topics in news to predict short term movements in markets, linking these movements to policy changes, mortality reports, or stimulus packages.
Our world is changing in a drastic way. If making decisions using data earlier was powerful, in these unprecedented periods of extreme uncertainty, it is essential.
In some ways, looking at difficult problems in a fresh, novel way through a data lens to find answers is what Auquan has been made for. Our global community of 15,000+ data scientists and AI experts provide us a new pair of eyes into a problems and enable us to find best in class solutions.
We are always around to brainstorm any ideas how data can help you make sense of these unusual times. Or hear new perspectives on the problem - reach out to me on [email protected] if you'd like discuss.
Share this Article:
Auquan is a data science solutions provider for asset managers and hedge funds. Our state of the art technology empowers Portfolio Managers to stay ahead of the trend and achieve better returns.