Semantic Folding Helps Improve Prediction of Stock Return Correlations

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Academic study stresses efficiency of Cortical.io’s Natural Language Processing approach for finance analytics.

Cortical.io's semantic fingerprints

Like the human brain, Cortical.io's Semantic Folding engine learns a language and understands the meaning of text by making analogies.

A recent academic study conducted by researchers from Leiden, Ben-Gurion and Toulouse Universities examined the performance of Cortical.io’s Semantic Folding approach for content analysis in a finance setting. Compared to the commonly used word-list method, Semantic Folding proved to have greater predictive power. Its other advantages were speed and ease of use.

“Like the human brain, our Semantic Folding engine learns a language and understands the meaning of text by making analogies. Like the brain, it is both efficient and accurate. We are thrilled to see these compelling results confirmed by an independent academic study”, comments Francisco Webber, inventor and co-founder of Cortical.io.

The research team used Cortical.io’s Retina API to create semantic fingerprints of the 30 Dow Jones Industrial Average constituents, based on business description sections of the companies’ annual reports. For each pair of companies, the similarity of their semantic fingerprints was compared to predict correlations between their stock returns over the following year.

The study found Semantic Folding to have greater predictive power than the traditional word-list based approach. Moreover, fingerprint similarity continued to significantly predict stock return correlations even when other measures of company similarity were controlled for.

The authors contend that Semantic Folding is simpler to use, has lower setup costs, and runs faster than the standard word-list based method. In addition, semantic fingerprints were considered to have an appealing visual interpretation. The authors argue that Semantic Folding significantly lowers the entry barriers for investigators interested in applying content analysis to financial data. To this end, the study includes sample code and suggests possible applications of Cortical.io’s Semantic Folding engine in several finance contexts.

The study, entitled “Using Semantic Fingerprinting in Finance” is available from http://ssrn.com/abstract=2755585.

About Cortical.io:
Cortical.io offers a fundamentally new approach to handling Big Text Data. Inspired by the latest findings on the way the human neocortex processes information, Cortical.io represents language by using highly efficient semantic fingerprints. The Cortical.io Retina is the first semantic engine that can process terabytes of unstructured text in real time, for any language and business domain – enabling global businesses to leverage the value Big Text Data has to offer.

In May 2015, Cortical.io entered into a strategic partnership with Numenta, that includes a broad general license to the HTM technology. The Cortical.io Retina has been recently certified as a Cloudera partner and is available on the Microsoft Azure and Amazon AWS marketplaces.

Cortical.io has offices in Vienna, Austria and in the San Francisco Bay Area. For additional information, please visit http://cortical.io

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Marie-Pierre Garnier
Cortical.io
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