Keeping Up with the COVID Economy: A Lesson in AI
Across the world, economies have shrunk due to the COVID-19 pandemic. The United Nations is predicting that the world economy will shrink by 3.2%, or $8.5 trillion by the end of 2020, amid uncertainty and continued restrictions, while the World Bank puts that number at 5.2%. The global supply chain, manufacturing and travel and tourism have been among the hardest-hit industries, but there will be ripple effects across all industries as the world enters a recession.
The extreme market volatility of March and April has given way to slight optimism, although many experts remain bearish about recovery predictions. As in all seismic shifts, companies and entire industries will emerge on the winning and losing sides of the pandemic. Tech stocks have seen booms from increased telecommuting activities, whereas the airline industry has bottomed out partially due to the halt of business travel. Pharmaceuticals, particularly those companies with drugs that can be repurposed for symptomatic treatment of COVID-19, or those developing potential vaccines, have benefited both in reality and in speculation.
Artificial Intelligence Can Help Investors
As the world develops new habits, trends and social norms, investors must overcome two identification obstacles. The first of these is identifying what is new and if these are temporary trends of long-term shifts. The second is identifying which companies are poised to profit and how to invest in them. This task is still daunting for large companies, banks and hedge funds — after all, the COVID-19 concept is still new and developing.
What happens to the individual investor or investment advisor trying to keep tabs on opportunities and weaknesses? News subscriptions, market data and analyst reports offer plenty of high-quality information. The problem is that access to information doesn’t give investors any more knowledge — it still has to be read, processed and stored before the investor can generate hypotheses and ideas. If you have the budget, a costly data analytics platform might be a solution to this problem, but without this, you have to do it all by hand.
For years, artificial intelligence (AI) has been tossed around as a solution to help the information economy. Larger financial institutions have played around with how they might harness this technology, but what does that look like for the average person or investment advisor?
Yewno|Edge Provides the Solution
Let’s take a look at how an AI platform might help determine exposure to COVID-19. Using Yewno’s new Yewno|Edge platform, one sophisticated individual investor tested out this brave new world. Here’s what he found:
“Using Yewno|Edge, I was able to formulate a hedging strategy in the midst of the COVID-19 pandemic. Not surprisingly, given the broad economic impact, I found thousands of companies exposed to COVID-19. The difference was that using Yewno’s artificial intelligence, I was able to actively watch and monitor how these fluctuations in exposure changed as events panned out,” Yewno’s client said.
The tool identifies companies exposed to COVID-19 and also formulated sentiment scores based on the huge amounts of data sources Yewno ingests. From a hedging perspective, the client was able to identify companies that were highly exposed to COVID-19 but had a positive Yewno sentiment score.
“In other words, I identified companies that were essentially benefiting from the COVID-19 risk in markets where I identified predominantly tech stocks prior to the rally,” he said. “These do not just constitute U.S. tech stocks but geographically diverse findings which allows for industrial and geographical diversification. I will continue to rely on Yewno|Edge to help navigate the ongoing coronavirus pandemic from both a hedging and idea generation perspective.”
Concept-Based Investing in the Future
One of the biggest issues with COVID-19 and investing is that this is an entirely new concept. Savvy investors might be able to mimic how companies have reacted, benefited and lost during other crises in the past but there isn’t an established pattern of cause-effect performance. The same is true for other new concepts such as cryptocurrencies, esports or 5G.
AI can help investors navigate exposure to new and changing concepts by monitoring patents and news, for example. It can also help to evaluate individual or portfolio holdings’ exposure to these new concepts and gauge market sentiment surrounding them. When it comes to concept exposure, AI offers an easy way to aggregate all of the information investors need to make informed decisions.