Sentiment Analysis. also known as opinion mining, is the process of computationally identifying and categorizing opinions expressed in a piece of text, especially in order to determine whether the writer’s attitude towards a particular topic, product, etc. is positive, negative, or neutral. The analysis finds significant prominence in social media, stock markets, law, policy making, sociology and even customer service.
Machines are faster at responding to events than humans and can process much vaster amount of information without any fatigue. In more volatile markets, people tend to react less strongly to positive news and react more strongly to negative news. Of course, there are situations where sentiment analysis, or sometimes also called News Analytics, works well for a position, while in other cases it fails. The following slide show is a summary of favourable and profitable outcomes of sentiment analysis in trading.
Now that you have understood a little about how sentiment analysis works, you would also want to know the pitfalls. For this and other such questions, we have an upcoming webinar on “Quantitative Strategies using Sentiment Analysis” by Rajib Ranjan Borah. The webinar will give a brief overview of how sentiment analysis works and some historical perspective along with suggestions on how to develop trading strategies. Register for the webinar on this link.