Can social sentiment be used to predict stock price?
SocialSentiment.io grew out of an experiment. I was curious what information I could gather from sentiment analysis of tweets related to stocks. Do tweets affect stock price? Can we predict stock price movement from public sentiment on social media? Does sentiment change before, during, or after stock price swings?
Short Answer: No
I've been running a wide variety of computations for the last year. At a macro level I can say that social sentiment is not an accurate predictor of stock price or market movement. You'd do just as well flipping a coin as using social media to predict stock prices. Sentiment moves with and after the market, not as a precursor. And, of course, correlations that are found in historical data can't be used to predict the future. You should therefore not make trades just from information found on SocialSentiment.io, but instead use it to supplement your research.
Some stocks show no correlation between public sentiment and price. Facebook (FB) is a prime example. As of this writing, they've generally gotten very negative online feedback. Investors, however, are pleased with the company's prospects and keep the stock price up. Posts from investors are outweighed by public sentiment.
There are individual stocks which do show a stronger correlation at times. Big product launches sometimes have an impact. Tesla (TSLA) is a great example. Some companies with little social media presence but active investors posting to Twitter will often show higher than average correlation. Companies with happy customers posting online and solid financials obviously do well.
But Wait, There's More
What I have discovered is that some people post opinions about stocks which have a higher than average correlation with short term price movements. Again, not predictions we can rely on for trading, but clearly some posters provide more insightful and accurate information about companies and analysis of their stocks. These would be useful social accounts to follow. We've also learned, as might be expected, the correlations change over time. When the broad market is moving in one direction, it's certainly easier to be right.
We've automated our analysis and use it to list the social media profiles with the highest correlation to recent stock price movement. This changes over time and is updated daily. We then use this information to provide a list of stocks worth watching. These stock tips are updated throughout the day as we pick up new posts. Recent correlation to short term stock price movement is interesting and has helped me discover new stocks to research.
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Disclosure: As of this writing I do hold direct investments in some of the stocks mentioned in this article. I may, at times, hold stock in other companies mentioned on this site.