Heckyl Alpha Pulse

Insight from FiND: Did you MISS the recent opportunity to short Facebook?

Posted on March 22, 2018 Updated on March 22, 2018

FiND, an alternative data platform, analyses news + data from thousands of sources (including social media) in real time. We have a clear focus on reduction of the information arbitrage by “discovery and analysis” of the news flow in real time. Our proprietary Sentiment Engine analyzes news by applying NLP and various business rules to capture underlying sentiment (positive/ negative/ neutral) accurately.

Earlier this week, the shares of Facebook were beaten down at the Wall Street due to a privacy failure by the social media giant. It’s surfaced that Cambridge Analytica improperly used the data of 50 million Facebook users to manipulate voters in US Presidential Election 2016.

News reports highlighting concerns over privacy of FB users’ data and misuse of social network platform have been making the rounds across mainstream media for months now. The negative media coverage highlighting these concerns gathered momentum during this month. However, the stock corrected sharply only after the media reported the misuse of FB users data by Cambridge Analytica. We highlight some of the news items captured by FiND below:

[Image 1: Company News Screen for FB]

A series of negative news flow was an indication of likely downtrend in the stock price of FB. There was an opportunity to short shares of social media giant earlier this month.

To help investors/traders for identifying such opportunities, we have developed FiND News Sentiment Indicator, which captures positive/ negative media sentiment around the company. By using our News Sentiment Indicator, we have prepared sentiment strategy that indicates bullish/bearish signals based on the crossover of fast and slow moving averages of the daily indicator value.

For social media giant, our sentiment strategy indicated a shift in sentiment from bullish to bearish on Mar. 8, 2018. Since then, sentiment for FB remained in the bearish territory as negative news flow dominated media coverage. During this bearish period, FB witnessed a sharp correction of 8.5% in the stock price.

[Image 2: Sentiment Strategy vs. FB Stock Price]

As can be seen, bullish/bearish periods based on sentiment strategy can give an early indication of upward/downward movement for the stock prices.

If an investor/trader was to buy/sell stock as per the bullish/bearish signal and hold the position for the period till the signal reverses vs an investment in FB, the returns would be significantly higher.

[Image 3: Returns Performance for Sentiment Strategy and FB Stock Price]

In our view, application of sentiment analysis in stock trading can help to grab such hidden opportunities by identifying market patterns and bubbles ahead of time.

To know more about FiND, email us at find@heckyl.com