Executive Summary

The purpose of this report is to present the results of live forecast performance evaluation for I Know First AI Algorithm, specifically for Singaporean stock Universe market. The following results were observed when signal and predictability filters were applied in order to pick the best performing stocks out of the most predictable ones. The period under evaluation is from January 1^st,2018 to November 30^th, 2018. The corresponding returns distribution of stock filters for Singaporean stock universe and the main findings are above:

Singaporean Stock Market Universe Highlights:

• Signal indicator filter applied to Top 30 stocks by predictability provides the highest return of 2.30% for a 3-months’ investment horizon at Top 5 signals level
• There is a clear increasing trend for returns’ improvement with the time horizon increase
• Top 5 stocks by signal significantly out-perform the benchmark, in every time-horizon

The above results were obtained based on forecasts’ evaluation over the specific time period using consecutive filtering approach – by predictability, then by signal, to give general overview of the forecasting capabilities of the algorithm for specific stock universe.

About the I Know First Algorithm

The I Know First self-learning algorithm analyses, models, and predicts the stock market. The algorithm is based on Artificial Intelligence (AI) and Machine Learning (ML) and incorporates elements of Artificial Neural Networks and Genetic Algorithms.

The system outputs the predicted trend as a number, positive or negative, along with a wave chart that predicts how the waves will overlap the trend. This helps the trader to decide which direction to trade, at what point to enter the trade, and when to exit. Since the model is 100% empirical, the results are based only on factual data, thereby avoiding any biases or emotions that may accompany human derived assumptions. The human factor is only involved in building the mathematical framework and providing the initial set of inputs and outputs to the system. The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions.

Our algorithm provides two independent indicators for each asset – Signal and Predictability.

The Signal is the predicted strength and direction of movement of the asset. Measured from -inf to +inf.

The predictability indicates our confidence in that result. It is a Pearson correlation coefficient between past algorithmic performance and actual market movement. Measured from -1 to 1.

You can find the detailed description of our heatmap here.

The Stock Picking Method

The method in this evaluation is as follows:

We take the top X most predictable assets, and from them we pick the top Y highest signals.

By doing so we focus on the most predictable assets on the one hand, while capturing the ones with the highest signal on the other.

For example, a top 30 predictability filter with a top 10 signal filter means that on each day we take only the 30 most predictable assets, and then we pick from them the top 10 assets with the highest absolute signals.

We use absolute signals since these strategies are long and short ones. If the signal is positive, then we buy and, if negative, we short.

The Performance Evaluation Method

We perform evaluations on the individual forecast level. It means that we calculate what would be the return of each forecast we have issued for each horizon in the testing period. Then, we take the average of those results by strategy and forecast horizon.

For example, to evaluate the performance of our 1-month forecasts, we calculate the return of each trade by using this formula:

This simulates a client purchasing the asset based on our prediction and selling it exactly 1 month in the future.

We iterate this calculation for all trading days in the analyzed period and average the results.

Note that this evaluation does not take a set portfolio and follow it. This is a different evaluation method at the individual forecast level.

The Benchmarking Method

The theory behind our benchmarking method is the “Null hypothesis“, meaning buying every stock in the particular asset universe regardless of our I Know First indicators.

In comparison, only when our signals are of high signal strength and high predictability, then the particular stocks should be bought (or shorted).

The ratio of our signals trading results to benchmark results indicates the quality of the system and our indicators.

Example: A benchmark for the 3d horizon means buy on each day and sell exactly 3 business days afterwards. We then average the results to get the benchmark. This is in order to get an apples to apples comparison.

Stock Universe Under Consideration – Singaporean Stock Market

In this report we conduct testing for Singaporean stock market that I Know First cover by its algorithmic forecast in “Singaporean stocks” package. The period for evaluation and testing is from January 1, 2018 to November 30, 2018. During this period, we were providing our clients with daily forecasts for Singaporean stocks and the time horizons which we evaluate in this report are 5 periods spanning from 3 days to 3 months.

Evaluating the Predictability Indicator

Following the methodology described in the previous sections, we start our analysis with computing the performance of the algorithm’s long and short signals for time horizons ranging from 3 days to 3 months without considering the signal indicator. Therefore, we applied filtering by the predictability indicator for 5 different horizons to investigate its sole marginal effect in terms of return when different filters are applied. Afterwards, we calculated the returns for the same time horizons of the benchmark using the same stocks universe and compared them to the performance of the filtered sets of assets. Our findings are summarized in the table below:

Singaporean Stock Universe Predictability Effect on Return

Average returns per time horizon (3 days to 2 weeks), only predictability filter

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 Average returns per time horizon (1 month to 3 months), only predictability filter

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From the above charts we can observe that generally the marginal predictability effect gives slight increases with the narrowing of the asset subsets from the Top 50 assets to the Top 30 assets filtered by predictability. We observed this effect for the majority of the considered time horizons and the maximum performance was recorded at 3-months’ horizon at 1.11%. In comparison with the benchmark based on all assets from the considered assets universe, we can see that just by applying the predictability indicator as an investment criterion without consideration of the signal strength, already yields positive return and outperforms the benchmark by almost 5% in case of Top 30 stock by predictability criterion on 3-months’ horizon.

Evaluating the Signal indicator

In this section we will demonstrate how adding the signal indicator to our stock picking method improves the above performance even further. It is also important to measure the out-performance relative to the benchmark and for that we will apply the formula:

As far as the Top 30 assets filtered by predictability showed the best performance in the previous section, we applied further filtering by signal strength to this subset to investigate potential improvement in return in comparison with sole predictability filtering. The results of the testing showed that there is a significant positive marginal effect on the assets return, especially in the case of the 3-months’ investment horizon. We present our findings in the following table and charts:

Singaporean Stock Universe Key Performance Indicators Summary

Average returns per time horizon (3 days to 2 weeks), predictability & signal filters

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Average returns per time horizon (1 month to 3 month), predictability & signal filters

Out-performance per time horizon (3 days to 3 months)

Average hit ratio per time horizon, predictability & signal filters

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From the above set of charts, we can clearly see that if we apply signal strength filtering to the Singaporean stocks’ universe, all the presented above subsets show significant improvements in the performance. In general, all the above subsets start to produce greater returns than the benchmark with increase of time horizon. As soon as we start to consider 3-months’ time horizon, we see that the returns of the Top 10 and Top 5 subsets make significant jump comparing to the shorter periods and ultimately reaches 2.26% and 2.30% by Top 10 and Top 5 on 3-months’ horizon, respectively. That results in the out-performance over the considered benchmark by some 158% in case of Top 10 stocks and by 179% in case of Top 5 stocks. Finally, the hit ratio for Top 10 and Top 5 filtered subsets follows the similar pattern – for all of the time horizons it generally stays above 50% and we observe its peak values for both sets on 3-month time horizon at 54% and 55%, respectively.

Conclusion

In this analysis, we demonstrated the out-performance of our forecasts for the stocks from Singaporean market picked by I Know First’s AI Algorithm for the period from January 1, 2018 to November 30, 2018. Based on the presented observations we record significant out-performance of the Top 30 stocks filtered by predictability for all time horizons for the considered asset universe, even without filtering by signal strength.

Applying our predictability indicator as an investment criterion coupled with filtering by signal strength, results in even greater out-performance over the benchmark comprised of stocks from the Singaporean stocks universe, in general. That said, the Top 5 stocks from the considered stock universe filtered by predictability and signal yield significantly higher returns than any other asset subset on all considered time horizons spanning from 3 days to 3 months. Therefore, an investor who wants to critically improve the structure of his investments by adding some Singaporean stocks to his portfolio can do so by simultaneously utilizing the I Know First predictability and signal indicators as criteria for picking stocks.

For more evaluation reports about the Singaporean stock universe, click here.