April 2020 |
News sentiment can enhance alpha strategies, along with augmenting risk management models for downside protection during periods of crisis. Following a statistical approach, whereby we evaluate thousands of long-short random portfolios as a benchmark, we consider three significant drawdown periods: the Global Financial Crisis, the Chinese market selloff of 2015-16, and the 2020 Coronavirus crisis. We find supporting evidence that:
• Sentiment-based strategies consistently outperform random portfolio strategies during the three crisis periods, showing strong statistical significance.
• A long-short U.S. large-cap strategy buying stocks with extreme positive sentiment, and selling stocks with extreme negative sentiment delivered Information Ratios between 2.6 – 2.8 during the Global Financial Crisis.
• A similar strategy delivered Information Ratios between 3.6 – 4.2 during the Chinese stock market selloff in 2015-16.
• During the recent Coronavirus crisis, the strategy delivered Information Ratios between 5.8 – 6.8.
Request Full White Paper Here: RavenPack Sentiment Data Outperforms During Coronavirus Crisis
Compliments of RavenPack International SL – a member of the EACCNY.