Tapping social media to track stocks

Derwent Capital has used Twitter sentiment to fuel its hedge fund. Now, apparently, it's ready to share that skill with you via an app and browser-based service.

For better or worse, the buzz on social media could be your guide to when and how to trade stocks.

Since last summer, Derwent Capital Markets has been using Twitter sentiment to help drive its hedge fund, as its algorithms sort out the ups and downs of people's chatter on the social network.

Now, Derwent is ready to share that ability with you. The firm today announced it's working on an online retail trading platform with a "built-in social media sentiment analysis research tool" -- which will track social media data from Twitter, Facebook, and elsewhere -- to let investors and traders keep tabs in real time on not only stocks but also commodities and currencies. The service will launch in late summer, according to The Next Web.

Now, whether you think this is a smart idea is, of course, up to you. Is Twitter sentiment really smarter than your own analysis or more reliable than your own gut feeling? Stock trading is, as they say, an inherently risky business.

Consider the example of last Friday's big Facebook IPO. One crowdsourced site, Facebookipodayclosingprice.com, optimistically forecast a closing price of $54, based on 2,251 predictions on Twitter. That turned out to be way off -- the stock closed that day at $38.23 (only 26 people predicted a closing price of $38).

By contrast, social media data platform DataSift seemed to do pretty well with the signals it was picking up. According to TechCrunch, "every time the volume of negative chatter on Twitter increased, Facebook's stock price dropped within 20 minutes."

For its part, Derwent says that academic studies have shown a "remarkably close" correlation between social media sentiment and stock prices.

Update at 7:24 a.m. PT: Added confirmation and further details from Derwent.

[Via The Next Web]

About the author

Jonathan Skillings is managing editor of CNET News, based in the Boston bureau. He's been with CNET since 2000, after a decade in tech journalism at the IDG News Service, PC Week, and an AS/400 magazine. He's also been a soldier and a schoolteacher, and will always be a die-hard fan of jazz, the brassier the better.

 

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