Stock Market Forecast: I Know First provides investment solutions for both individual and institutional investors, utilizing an advanced AI self-learning algorithm to gain a competitive advantage. We offer a personalized approach to our institutional clients, assisting them in their investment process based on their specific needs and preferences. For more details about I Know First solutions for institutional investors, please visit our website.

Stock Market Forecast: Market Neutral Strategy

A market-neutral strategy is a type of investment strategy that seeks to profit from both increasing and decreasing prices while attempting to completely avoid market risk. The following trading strategy was developed using I Know First’s AI Algorithm daily forecasts from January 1^st, 2020, to May 31^st, 2024, with a focus on S&P 500 stocks selected based on the signal filter. This strategy is available to our institutional clients: hedge funds, banks, and investment houses, as a tier 2 service on top of tier 1 (the daily forecast).

The strategy involves constructing a portfolio with monthly rebalancing and controls the majority direction. The term “majority direction” refers to our predictions for stocks, upon which we base our position. This decision is guided by a number of long and short stock forecasts. Therefore, if the count of long stock forecasts surpasses the count of short stock forecasts, the majority direction is to go long, and we construct a long portfolio. Conversely, if the count of short stock forecasts is higher, we assume a short portfolio. Additionally, we utilize a signal outlier filter to ensure that stocks with signals outside of the selected range, i.e., those exhibiting extreme values, are not included.

In this strategy, we first identify the direction of our trading based on the majority trend (long/short). If the majority direction is long, we allocate 42% of our portfolio to the three most promising Level 1 ETF sectors based on the signal forecast. Another 14% is allocated to the two most promising Level 2 ETFs, and 14% is allocated to the five most predictable stocks from our forecast universe. Finally, we take a short position in SPY, allocating 30% of the portfolio.

If the majority direction is short, we allocate 30% of our portfolio to short positions in the three most promising Level 1 ETF sectors, 10% to two Level 2 ETFs, and 10% to the five most predictable stocks from our forecast universe. Finally, we take a long position in SPY, allocating 50% of the portfolio. We rebalance our strategy on a monthly basis

The strategy provides a positive return of 106.19% which exceeded the S&P 500 return by 44.8%. Below we can notice the strategy behavior for each year.

The I Know First strategy has an impressive Sharpe ratio of 1.1, which compares the return of an investment with its risk, and a Sortino ratio of 1.6, which compares the return of an investment with its given level of downside risk. Moreover, according to risk measures, the strategy helps neutralize some market risk, making it less risky than the S&P 500.

I Know First Algorithm – Seeking the Key &  Generating Stock Market Forecast

The I Know First predictive algorithm is a successful attempt to discover the rules of the market that enable us to make accurate stock market forecasts. Taking advantage of artificial intelligence and machine learning and using insights of chaos theory and self-similarity (the fractals), the algorithmic system is able to predict the behavior of over 13,500 markets. The key principle of the algorithm lies in the fact that a stock’s price is a function of many factors interacting non-linearly. Therefore, it is advantageous to use elements of artificial neural networks and genetic algorithms. How does it work? At first, an analysis of inputs is performed, ranking them according to their significance in predicting the target stock price. Then multiple models are created and tested utilizing 15 years of historical data. Only the best-performing models are kept while the rest are rejected. Models are refined every day, as new data becomes available. As the algorithm is purely empirical and self-learning, there is no human bias in the models and the market forecast system adapts to the new reality every day while still following general historical rules.

Conclusion

I Know First offers investment solutions for institutional investors, leveraging our advanced self-learning algorithm to gain a competitive advantage. We provide a personalized approach for our institutional clients, enhancing their investment process according to their specific needs and preferences. In this context, we have evaluated the performance of the market neutral strategy during the period from January 1^st, 2020, to May 31^st, 2024.

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Please note-for trading decisions use the most recent forecast.