Heckyl Alpha Pulse

Faster Trading Opportunities with Smarter Taxonomy

Posted on November 3, 2014 Updated on January 16, 2015

Taxonomy is the science of the classification of things and when implemented effectively it helps us to retrieve relevant information in a timely manner.

The Best Taxonomy

The Global Industry Classification Standard (GICS) and Industry Classification Benchmark (ICB) are an industry taxonomy developed for use by the financial community, when classifying companies. These Sector classifications are probably the best-known taxonomy in the financial field. However, in trading since it is all about relevancy and contextual information, at Heckyl, we believed that a new level of taxonomy was needed that could analyse data – be it news, events or companies – at a much more granular level. Our taxonomy is therefore based on machine learning, which goes beyond keyword matching.

Inconsistent Writing within Data

As highlighted in our last blog, data explosion creates problems with regard to the gathering and processing of information, but at the same time offers enormous opportunities too. However, when referring to these data sets, how do you deal with the idiosyncrasies of the English language?

To explain this further, consider the case of an event driven Hedge Fund that might be keenly interested in Mergers & Acquisition (M&A). They would typically look out for the term, “Mergers & Acquisition”and specifically in reference to sectors. Unfortunately there is no common generic term that is consistently adhered to, when being written about it.

Smarter Taxonomy for Trading

With the aim to provide relevant information as precise as it can get, FIND (Financial in News and Data), which is our analytical platform, has its own dictionary and parts of speech to consider, for news to be tagged as M&A. These include: Merger, Acquisition, Take Over, Buy Out, Hostile, T/O (commonly used on Twitter) and many more.

Our tagging algorithm classifies each news into its sector and among one of the many subsectors defined within. The machine learning algorithms further categorises, each news based on models generated on past data. A combination of 32 different business rules and words are further used to classify the underlying event. This helps us identifying precise sector specific keywords. For example ‘well’ in the Oil and Gas sector will relate to the discovery of a well, a very different meaning to ‘well’ in the Pharmaceutical sector, which relates to the efficacy of a drug

A Granular Taxonomy at all Times

Every event brings a potential opportunity and based on five years of backtesting, Heckyl has mapped every industry, share movement and associated news. Being able to recall relevant data, from product launches to tax inversion plans quickly, is only possible due to a taxonomy that effectively classifies and filters these events at a very granular level.

Seen here below , is a view of relevant news based on a users portfolio segmented by type, using Heckyl’s proprietary taxonomy.

Reach us at info@heckyl.com to know more.