HSBC investment platform simulates ‘thousands of analysts’ with AI
- HSBC has launched a ‘world-first’ AI-powered investment index, which scours non-traditional data sources like tweets
- The technology can help customers “thrive in an increasingly complex world of data.”
- Investment management firms have long eyed the potential of AI to analyze the market
The vast multitude of data generated by organizations and markets today provides investors a real-time mass of information that, if unravelled, can provide a rich tapestry of promising stock options at their ripest.
But in the digitized world we live in today, the nature of that data goes well beyond hard numbers.
Behind bullish earnings calls, for example, could the tone of a CEO’s language tell us a different story about confidence in outlook? If we looked into the parking lots of the United States’ biggest retailers, might we identify a shift in consumer behavior that could impact their business?
It’s these kinds of insights and more that HSBC wants to unlock. The banking multinational has launched the AI Powered US Equity Index (AiPEX), which it claims to be the market’s first use of artificial intelligence (AI) as a method for equity investing.
The index was created by EquBot, an IBM Watson AI-powered platform for building or analyzing portfolios, by reading and analyzing millions of traditional and non-traditional data points each day, whether those are financial statements, news articles, a tweet, a satellite image, or indeed, the tone of language a CEO uses during an earnings presentation.
That ability is made possible by machine learning algorithms and knowledge graph, as well as Watson’s natural language processing. EquBot says it is able to “continuously learn as headlines break and new information becomes available.”
Applying what has been learned through big data and AI, AiPEX uses a rules-based process to objectively evaluate each of the 1,000 largest US publicly traded companies and selects those whose stock prices are poised for growth, according to the AI.
HSBC says this is based on an objective selection process that is similar to fundamental approaches, “only thousands of times faster and broader in scope.”
The index rebalances its portfolio monthly, and to manage short-term volatility reallocates among chosen equity and cash on a daily basis.
“In today’s markets, investors need strategies that can keep up with the growing amount of data being generated each day,” said Dave Odenath, head of quantitative investment solutions, Americas at HSBC Global Banking and Markets.
“We are now able to offer clients solutions that not only keep up, but thrive in an increasingly complex world of data.”
Odenath said the AI-powered index simulates “a team of thousands of analysts and traders working around the clock to learn from millions of pieces of information and identify potential investment opportunities.”
While HSBC may have claimed a world-first AI index, the potential of the technology to unlock insights from big data has long attracted attention of investment firms.
Like many other industries, AI has first been brought into ‘back-office’ functions where it can support analysts’ workloads and help drive business cost reductions and efficiencies.
As reported by Deloitte, AI is now providing new opportunities beyond these areas, and many investment management firms are “actively testing the waters.”
BlackRock, for example, the world’s largest asset manager, last year created a new center dedicated to AI research underscoring the heightened interest among firms around how AI can transform many facets of the industry.