How To Beat The Stock Markets and Coronavirus With AI

This article about coronavirus and stock markets was written by Gabriel Plat, a Financial Analyst at I Know First.


Summary

  • The fear of the pandemic caused panic and losses in stock markets over the world with VIX index increasing 225.30% in 3 months;
  • In this situation, it is normal to have losses in the stock market;
  • Stocks like Amazon and Nintendo grew over 30% amid the crisis;
  • AI can help you make the best decision in a time you can not afford to have a mistake.

The Fear

The year 2020 in the stock markets is what we call a roller coaster. Since the spread of the new Coronavirus outside China, we have seen stocks from different sectors and from different countries changing abruptly its trends. This can be seen clearly by the VIX Index chart below.

VIX-1-Jan-19-16-Mar-20

This index is also called the “Fear Index” since it is a measure of the market expectation for volatility in the next 30 days. Its value by the end of March was the highest since Jerome Powell was nominated the head of FED in 2018. This index value represents that investors are more open to pay a higher price to keep them protected against volatility. In other words, the higher the level, the greater the feeling among investors.

This may be only one index, but it represents pretty well the situation the finance world saw in the last month.


The Loss

The Fear Index did not increase more than 200% since January by chance. The reason for this was not directly the COVID-19 pandemic, but its impact on the economy. Since governments started adopting strong measures against the disease, expectations started to fall rapidly.

coronavirus stock markets
Source: Gormsen, N J and R S J Koijen (2020)

The chart above is pretty clear. The restrictions imposed by European and American governments made the growth expectations hit rock bottom. The impact was also seen in the stock market.

coronavirus stock markets
S&P had four circuit breakers in March. Source: Reuters Graphics

When the S&P 500 falls more than 7% before 3:25 pm in New York time, there is a 15 minutes pause in trading all over the United States. Considering that this does not happen frequently, seeing it happens four times in one month may explain the situation the economy faced last month. For example, the Dow Jones industrial average saw a one day drop that was not seen since the Black Monday in 1987 and the Great Depression.

coronavirus stock markets
Source: Reuters Graphics

With all this being said, we can presume that the average individual investor saw a value decrease in their portfolio.


The Opportunity

Even all the chaos we are experiencing right now, is it still possible to avoid losses? The answer, obviously, is yes.

There are several options not to only avoid losses, but also profit during this pandemic. Last month I wrote an article about threats and opportunities in the stock market. Between the stocks mentioned to think outside the box, I predicted that streaming services such as Amazon Prime, Netflix and Spotify could increase its subscribers and boost its stocks. One month later, all of them had positive results.

Spotify-Netflix-Amazon
Source: Reuters Finance

In the same article, I said that the video-game sector may as well follow the same path. One month later, Sony (6758.T), Nintendo (7974.T) and Microsoft (MSFT.O) registered an increase in its stocks.

Nintendo-Sony-Microsoft
Source: Reuters Finance

Following this article, other ones were written here at I Know First with bullish predictions. This is the case for Nvidia, Facebook and Apple stocks. All of them consist not only in the technical interpretation of our analysts but also in the prediction of our proprietary developed AI algorithm.


The Help

When we talk about avoiding losses in stock markets during the Coronavirus pandemic, there is no better way to minimize the risks than conducting your decision in a solid analysis. And here is where I Know First excels.

The AI-powered algorithm is responsible to generate daily forecasts that help investors to understand stock trends and to invest properly. By using machine learning and over 15 years of stock database, the algorithm provides outlooks for different stocks in different time horizons, for both short and long positions. Amid this pandemic, the AI can be your economic moat against uncertainty.

Taking Netflix as one example, the algorithm generated a bullish prediction last October. The algorithmic trading tool successfully forecasted the movement of the NFLX, with the stock price increasing 30.37% in the period.

Netflix Stock Forecast

Correct predictions like this one are not uncommon. Performances of the algorithm in other stocks have a strong hit ratio. When evaluating Nvidia stock, for example, the I Know First algorithm had a hit ratio above 58% in all time horizons, with an incredible 100% in the 1-year horizon.

We can see a similar average hit ratio with other stocks such as MU and Apple. The algorithm is not guessing, it is using information and data to generate correct predictions.

Latest Forecasts Also Has Good Results

The latest forecasts generated by the algorithm also produced solid results. The algorithm predicted successfully 9 out of 10 stocks of the Stocks Under 5 Dollars package with a 17.39% return on the 7 Days horizon. This return is also higher than the S&P 500 in the same period of time.

Also, the algorithm has a package named Coronavirus Stock Market Forecast, that identifies the most affected stocks in a negative way while also highlighting the opportunities arising in the stock market during these extraordinary market situations. The package covers the assets that may be affected by the coronavirus with the biggest financial exposures. The last forecast for a 7 Days time horizon predicted correctly 10 out of 10 stocks movements.


Conclusion

Times of uncertainty happens once in a while. When the economy panics, investors tend to lose money by simply following the wrong strategies. But even in the middle of the Coronavirus pandemic, it is possible to beat stock markets.

First of all, we need to analyze carefully the situation to understand the threats and opportunities of it. There are companies in this kind of moment that go against the flow and can be the best opportunity for the investor to get the best advantage of the market. Examples like Amazon and Nintendo stocks, which rose 27.92% and 40.67% respectively, show that it is in fact possible to do it.

To help the investor decide what should be the best strategy, the I Know First algorithm is here to help. With at least a 57% hit ratio in all time horizons for stocks like NVDA, the AI is already helping several investors all around the world to not only protect themselves but also to profit. Even in the middle of the pandemic.


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