NLP & Alternative Data : advantages in the financial market

NLP & Alternative Data : advantages in the financial market

Artificial Intelligence & Machine Learning

Brazil represents an enormous market with huge potential for the application of NLP in finance.

Praia de Copacabana no Rio de Janeiro, Brasil (Copacabana Beach at Rio de Janeiro, Brazil)

You know when you start typing a text on whatsapp and the app makes word suggestions? Or when you do a search on the internet and receive other suggestions of sites or similar words? Or even when certain emails go to spam? All of this is part of artificial intelligence processes called Natural Language Processing (NLP).

Belo Investment Research’s Director of Research, Gustavo Peconick, explains that NLP is “a statistical method that converts words into numbers, more precisely vectors; moreover, it operates mathematically based on the word and it processes similarities between various texts”.

The applications of Natural Language Processing are not restricted to everyday practices. “They are increasingly being used in the financial market to build an indicator that enriches the analysis to outline an investment strategy along with other factors that help in the pricing of assets” , says Gustavo Peconick.

The financial market is agile

Discovering something within millions of data before all other operators is an informational advantage. Belo’s Research Director adds that “being able to identify certain market movements depends on extracting structured data from different sources, so the analyst will process which indicator is more relevant and can have important insights with the NLP”.

One of the functions of NLP is the systematic and rapid analysis of vast textual contents. It counts, groups and categorizes words to extract structure and meaning. Furthermore, programmatically identified patterns can become viewed, filtered, or used as inputs to predictive models or other statistical methods.

Another task of Natural Language Processing is sentiment analysis.

Through it, it is possible to identify the state of mind or subjective opinions in the most diverse texts. Including the average feeling and opinion. It helps to filter what you have to read, process and identify relevant content for a more assertive analysis.

Gustavo Peconick says that Belo, an unconventional data research firm focused on the financial market, uses NLP to extract value from the most appropriate information to improve the performance of each client. For each analysis, a process becomes built that aims at a specific objective. A selection of the information to be collected is made, the texts are collected. Then the training of a neural network that will treat the established indicators generate data that will become analyzed by the research team.

Among the main benefits of NLP are the agility and constant updating of data

As a result, this helps managers and investors make more strategic and appropriate decisions. Furthermore, it allows content analysis that would not be viable in more traditional methods.

Lastly, despite being a differential in the global financial market for years, the director of Belo explains that the collection and use of alternative data allied to the NLP is still not a widespread practice in Brazil, “if your competitor is using these techniques and you are not, you’re losing. In the financial market, one wins and the other loses”, he concludes.

Gustavo Peconick was the guest of Belo Ao Vivo, a lives program on Instagram by Belo Investment Research (@beloinvestmentresearch), which aims to discuss current topics in an uncomplicated way, every Wednesday at 6:30pm.

Belo Investment Research is an independent research company that combines traditional and alternative data to analyze market trends since 2016.

NLP & Alternative Data : advantages in the financial market

Artificial Intelligence & Machine Learning

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