Category archives: Machine Learning

Can Yield Curves Predict Stock Market Direction? - A Machine Learning Perspective

Last update on Aug. 19, 2019.

Image Credit: dani3315 / Shutterstock.com

 

Many investors are concerned about the yield curve today. Generally speaking, a positive sloping yield curve (i.e. where long term interest rates are higher than short term rates) portends future economic health. By contrast, negative sloping yield curves (a.k.a. “inverted” curves) have tended to precede recessions.

Today, the yield curve is the most inverted it’s been since before the financial crisis. This has led some investors to wonder: should they sell stocks today to protect their portfolios? Or should they hold onto them because, despite widespread belief, yield ...

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The Zeta Coefficient – A New Way to Forecast Returns Using Risk

Last update on July 29, 2019.

Image Credit: Debby Wong / Shutterstock.com

Risk comes from not knowing what you’re doing

Warren Buffett

As far as superhuman powers go, the ability to accurately forecast returns probably wouldn't be many people's first choice. It's not as sexy as super speed or laser eyes. But, imagine the edge you'd have as an investor if you could look at an opportunity and predict the returns with precision. You would essentially remove all of the risk from investing: you'd be playing the game on easy mode!

Risk and returns are inter-twined. If you can assess risk accurately ...

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Why Decision Trees Work Well For Investment Analysis

Last update on July 22, 2019.

Image Credit: Boo-Tique / Shutterstock.com

 

What is the best machine learning algorithm? The answer is, unsurprisingly, “it depends.” There are many different types of machine learning algorithms, each with their own unique way of modelling the real world in some fashion.

 

Tradeoffs on Model Complexity

The best algorithm is generally one that most closely mirrors the real world. Think of each machine learning algorithm as a set of lego boxes, each containing different shapes of bricks. If you’re going to build an airplane, you’re going to do better with lego boxes containing wing shaped ...

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It's Not Just Hype - Why Machine Learning Holds So Much Promise

Last update on July 8, 2019.

Image Credit: Grigorita Ko / Shutterstock.com

 

In the book “MoneyBall”, author Michael Lewis documented the story of the Oakland A’s baseball team. Despite their shoestring budget, the A’s consistently contended with teams with far bigger budgets, such as the New York Yankees. The secret of the team’s success boiled down to one thing - the use of statistics. Instead of relying on the subjective judgements of scouts, the A’s made rational decisions on player acquisitions using data.

Unfortunately, the story doesn’t have a good epilogue. Not long after the book’s publication in 2004, the team’s standing began ...

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My TFSA Update September 2018

Last update on Oct. 22, 2018.

Image Credit: Sarah Holmlund / Shutterstock.com

 

In this series, I (Jin Choi) talk about my goal of reaching $1 million in my TFSA account by 2033. If you want to know what a TFSA is, I recommend you read my free book.

 

September Results: Down 1.2%

At the end of September, I had $56,630 in my TFSA account, which was down by 1.2% since the start of the month. By comparison, the Canadian stock market went down by 0.9% while the U.S. stock market went down by 0.1% in ...

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My TFSA Update August 2017 - Does Combining CNNs and GRUs Yield Better Stock Price Predictions?

Last update on Sept. 18, 2017.

Image Credit: MeskPhotography/Shutterstock.com

 

In this series, I (Jin Choi) talk about my goal of reaching $1 million in my TFSA account by 2033. If you want to know what a TFSA is, I recommend you read my free book. In this post, I’ll detail what came of my efforts to combine two machine learning architectures - Convolutional Neural Networks (CNN), and Gated Recurrent Unit (GRU) - in order to make better stock price predictions.

 

August Results: Down 5.5%

At the end of August, I had $45,907 in my TFSA account, which was down by 5 ...

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Can Stock Price History Be Used To Predict Future Prices? Part 2: LSTMs And GRUs

Last update on July 31, 2017.

Image Credit: Serhii Bobyk / Shutterstock.com

 

In this series, I investigate the potential of several well known neural network architectures to predict Canadian stock prices, given only historical prices and trade volumes. In part 1 of this series, I investigated convolutional neural networks and discovered that they had some predictive capability, though perhaps not enough to prove useful for trading.

For this instalment of the series, I’ve trained two different neural network architectures - the Long Short-Term Memory (LSTM), and the Gated Recurrent Unit (GRU) - on the same data. Both LSTM and GRU are instances of a ...

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Can Stock Price History Be Used To Predict Future Prices? Part 1: Convolutional Neural Networks

Last update on June 26, 2017.

Image Credit: Arkadiy Chumakov / Shutterstock.com

 

In my first set of articles on machine learning, I investigated whether deep neural networks, when trained on financial ratios, could predict future stock prices. The conclusion I drew in the second article was that no, financial ratios didn’t predict future stock prices. This finding was consistent with other people’s observations that algorithm driven value investing hasn’t worked in the past decade or so.

But while value investing hasn’t worked, other relatively simple strategies have. Some of these strategies solely act on signals drawn from the behaviour of stock prices ...

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Can Financial Ratios Predict Next Year's Stock Performance? (Part 2)

Last update on April 30, 2017.

Image Credit: Zapp2Photo / Shutterstock.com

 

In part 1 of this series, I explained how deep neural networks (DNN) can discern complex cause and effect relationships that traditional statistical models can’t. I had also set up the question we are trying to evaluate using DNNs: is there some combination of financial ratios that can predict individual stock performances over the next 12 months?

In this article, I continue where I left off and present some of the results. I will also discuss some possible explanations behind the results and explore some ideas for the future.

I mentioned ...

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Can Financial Ratios Predict Next Year's Stock Performance? (Part 1)

Last update on April 24, 2017.

Image Credit: Zapp2Photo / Shutterstock.com

 

Machine learning is arguably the hottest topic in technology today. It’s what has enabled us to shoot videos of ourselves spewing rainbows, and it’s what will enable cars to drive themselves in the future.

As I’ve read more about the topic, I’ve begun to wonder if machine learning could be applied to investing. To deepen my knowledge, I’ve spent the last few months reading books on the subject and practicing on data sets.

Fortunately, my educational background has allowed me to pick up the topic more easily. Machine learning, at its ...

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