As quantitative investment methods expand with the increasingly rapid pace of technological innovation, Goldman Sachs Group Inc (NYSE:GS) today is reported to have invested $15 million in a start-up that analyzes not just numeric data – as most quantitative programs currently do – but considers textual context.
Goldman Sachs’ investment in Kensho
A Cambridge, MA start-up, Kensho, was the recipient of the second round funding, which now values the firm in the nine figure range, according to a report in Forbes. In an earlier seed funding round, Kensho raised nearly $10 million from well-known firms such as Accel Partners, Breyer Capital, General Catalyst, and Google Ventures.
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While most quantitative analysis used in trading stocks is numeric, up to 80 percent of the meaningful data is textual in nature, a Financial Times report notes. “Wall Street historically was constrained to playing in the 20 per cent of data that move markets,” Daniel Nadler, chief executive of Kensho, was quoted as saying. Conducting a quantitative analysis of markets without seeing the other 80 percent of the data is like ““trying to see the world with not only one eye covered, but one eye covered and the other eye half-closed.”
By combing through central bank announcements, weather updates, product releases and geopolitical events, the goal is to use computer programs to transform words into tradable trend analysis and informational gold. Previously financial firms were limited to using computers to consider financial statistics and develop trend analysis programs using numeric data such as the price earnings ratio, book to value, given statistical trends in their stock’s price relative to market capital and fair value.
Goldman Sachs could be among the pioneers in analyzing textual data
Analyzing textual data is treading into the realm of the Wall Street analyst, and Goldman Sachs Group Inc (NYSE:GS) could be among the pioneers in the industry, streamlining its internal operations as well offering access to its clients, which would make it a strategically significant investor in the start-up. The system is being likened to an advanced version of Siri, the iPhone artificial intelligence application that answers questions. For instance, bank analysts will be able to ask questions such as “What happens to the price spread between oil and gasoline if a category three hurricane makes landfall in Louisiana?” In addition to computational analysis of textual data, the Kensho system would have ease of use functionality as well.
The exact size of Goldman Sachs Group Inc (NYSE:GS)’s investment in Kensho is unknown, but reports say Goldman Sachs has become the largest investor. Kensho could disrupt the financial data industry, currently dominated by Bloomberg and Thomson Reuters who offer terminal access to sophisticated market analytics. Goldman Sachs’ move comes as major banks are also considering methods to create their own private chat service.
H/T Climateer Invest