Could Artificial Intelligence have predicted this correction?

Posted on January 15, 2016 by

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To answer that question, we asked our Machine Learning-based forecaster what it thought would happen a month ago.

At Lucena Research we use supervised learning to predict the future return of equities and ETFs.  Our QuantDesk platform allows us to roll back time and ask “what if” questions.  So, we rolled back time and asked it: “Will the market go up or down over the next month?”  Here’s the answer it gave:

Lucena's forecast for the S&P 500 as of December 31, 2015. The forecast is represented as a diagonal (down) line, with confidence intervals above and below.

Lucena’s forecast for the S&P 500 as of December 31, 2015. The forecast is represented as a diagonal (down) line, with confidence intervals above and below.

The vertical line on the right represents December 31, 2015.  You can see the forecast at that time, and then the actual market performance as the jagged line going forward.  So, indeed, our system was predicting the correction we’re in as of two weeks ago.

We use this forecaster as part of our successful long/short TieBreaker strategy.  As of today, January 15, 2016, Tiebreaker is up 4.5% year to date, and 17.8% over the last year.  If you’d like more information about our strategies, send me an email.


 

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