Executive Summary

In this stock market forecast evaluation report, we will examine the performance of the forecasts generated by the I Know First AI Algorithm for Coronavirus related stocks for long and short positions which were sent daily to our customers. Our analysis covers the period from March 4th, 2020, to July 19th, 2020.

Top Coronavirus Stocks Highlights

• The Top 20, Top 10, and Top 5 signal groups generated by I Know First consistently outperformed S&P 500 Index for all five time horizons.
• The Top 5 signal group outperformed the S&P 500 by 32.84% using the 3 month time horizon.
• All hit ratios, except for the top 5 signal one week forecast, are above 50%. All three month hit ratios are above 60%.
• Using only long positions, returns across every signal group and time horizon drastically increased
• For long positions only, the top 5 signals with a 3 month time horizon outperformed the S&P 500 by over 75%.
• Long position hit ratios for all time horizons are above 50% and all 3 month forecast hit ratios are above 85%

About the I Know First Algorithm

The I Know First self-learning algorithm analyzes, models, and predicts the stock market. The algorithm is based on Artificial Intelligence (AI) and Machine Learning (ML) and incorporates elements of Artificial Neural Networks and Genetic Algorithms.

The system outputs the predicted trend as a number, positive or negative, along with a wave chart that predicts how the waves will overlap the trend. This helps the trader to decide which direction to trade, at what point to enter the trade, and when to exit. Since the model is 100% empirical, the results are based only on factual data, thereby avoiding any biases or emotions that may accompany human derived assumptions.

The human factor is only involved in building the mathematical framework and providing the initial set of inputs and outputs to the system. The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions.

Our algorithm provides two independent indicators for each asset – Signal and Predictability.

The Signal is the predicted strength and direction of the movement of the asset. Measured from -inf to +inf.

The predictability indicates our confidence in that result. It is a Pearson correlation coefficient between past algorithmic performance and actual market movement. Measured from -1 to 1.

You can find a detailed description of our heatmap here.

Evaluating Coronavirus Stock Forecasts: Opportunities at Coronavirus Times Package

This Coronavirus Stock Market Forecast identifies the most affected stocks in negative way while also highlighting the opportunities arising in the stock market during these extraordinary market situation. The package covers the assets that may be affected by the coronavirus with the biggest financial exposures and it includes assets such as gold and relevant commodities, biotech companies’ stocks, pharmaceutical companies’ stocks, semiconductors and technological sectors stocks and more

For the analysis we group the forecasts by absolute signals since these strategies are long and short. If the signal is positive, then we buy and if negative, we short.

The Stock Market Forecast Performance Evaluation Method

We perform evaluations on the individual forecast level. It means that we calculate what would be the return of each forecast we have issued for each horizon in the testing period. Then, we take the average of those results by strategy and forecast horizon.

For example, to evaluate the performance of our 1-month forecasts, we calculate the return of each trade by using this formula:

This simulates a client purchasing the asset based on our prediction and selling it exactly 1 month in the future.

We iterate this calculation for all trading days in the analyzed period and average the results.

Note that this evaluation does not take a set portfolio and follow it. This is a different evaluation method at the individual forecast level.

The Hit Ratio Method

The hit ratio helps us to identify the accuracy of our algorithm’s predictions.

Using our Daily Forecast asset filtering, we predict the direction of the movement of different assets. Our predictions are then compared against actual movements of these assets within the same time horizon.

The hit ratio is then calculated as follows:

For instance, a 90% hit ratio for a predictability filter with a top 10 signal filter would imply that the algorithm correctly predicted the price movements of 9 out of 10 assets within this particular set of assets.

The Benchmarking Method: S&P 500 Index

In order to evaluate our algorithm’s performance in comparison to the American market, we used the S&P 500 index as a benchmark.

The S&P 500 measures the stock performance of the largest 500 companies by market cap listed on different stock exchanges in the United States. It is one of the most followed equity indices and is frequently used as the best indicator for the overall performance of US public companies, and the US market as a whole. S&P 500 is a capitalization-weighted index, the weight of each company in the index is determined based on its market cap divided by the aggregate market cap of all the S&P 500 companies.

For each time horizon, we compare the S&P 500 performance with the performance of our forecasts.

Performance Evaluation: Overview

In this report, we conduct testing for the Coronavirus related stocks that I Know First covers by its algorithmic forecast. The period for evaluation and testing is from March 4th, 2020 to July 19th, 2020. During this period, we were providing our clients with daily forecasts for Coronavirus stocks in short term and long term time horizons spanning from 3 days to 3 months which we evaluate in this report.

Coronavirus Stocks: Long Position Evaluation

Signals for only long positions performed extremely well between March 4th and July 19th. Every signal group for every time horizon outperformed the S&P 500. For the shortest and longest time horizons, the top 5 signal group exponentially outperformed the benchmark index. That group had a return of 1.89% for 3 day forecasts, in comparison the the S&P 500’s return of 0.15% and a 93.93% return for 3 month forecasts, substantially greater than the S&P 500 gain of 18.23%.

In addition to considerably outperforming the S&P 500, our long position signals all had a hit ratio over 50% for every time horizons. This is significant because in addition to having tremendous returns, we also have demonstrated consistency for positive gains. Every signal group for the 3 month forecast had an outstanding hit ratio greater than 85%.

Coronavirus Stocks: Long and Short Position Evaluation

As seen in Table 3, top 5, top 10, and top 20 signal groups for long and short positions outperformed the S&P 500 for every time horizon except for the 7 day forecast. In addition, the top 5 signal group outperformed every other group for almost every time horizon. The top 5 signal group for 3 day and 3 month forecasts had the best performance in comparison to the benchmark index. Between March 4th, 2020 and July 19th, 2020 the 3 month time horizon for the top 5 signals had a return of 51.07% in comparison to the S&P 500’s growth of 18.23%.

Other than the top 5 long and short position signal group for the 7 day forecast, every hit ratio is above 50%. This is significant because the algorithm is able to produce consistent positive returns. The longer the time horizon is, the higher the hit ratio. The algorithm is able to identify long term positions to hold in order to generate steady positive gains.

Conclusion

This evaluation report presented the performance of I Know First’s algorithm for Opportunities at Coronavirus Times Package forecasts from March 4th, 2020 to July 19th, 2020. It shows the average returns and hit ratios for all time horizons.

The I Know First algorithm has obtained better performance for both short term and long term time horizons. It succeeded in generating significant positive returns for every signal group and time horizon. It is important to note that almost every signal group across every time horizon gave a hit ratio greater than 50%, and in some cases over 85%, showing consistent and reliable accuracy.  It is advisable for traders to rebalance their portfolio using the most updated forecasts sent by I Know First.

We look forward to new market data in the following months and will monitor the changes in performance trends that are going to be communicated to our investors and subscribers in the follow-up reports.