Social Alpha 2.0: Sifting Through a Sea of Signals

Social media analytics has moved beyond an embryonic stage to a more mature business. As the playing field expands, users are slicing it into increasing areas of specialization and pushing for better integration into workflows. Firms that seek to differentiate themselves are identifying use cases beyond the alpha-seeking variety. In the financial world, adoption is moving beyond hedge fund and quant first-movers to long-only and fundamental managers.

In the next year, the definition of social analysis will expand to new metrics and data sets. Existing segments of social analysis have already specialized into financial chatter, influential people, event detection, trend identification and sentiment analysis. While value can be found using different methods, not every approach is actionable for investors. There is stiff competition among social media analytic providers, which will lead to consolidation. Success will depend on the ability to create a unique solution and scale it.

One of the most significant progressions for social data is its transition beyond just a trader’s tool. Over the last couple of years, social data has captured the interest and imagination of research analysts, portfolio managers and compliance desks and has been transformed from a basic buy/sell signal to a full component of the research process and another way to manage risk. Whether it is supporting a qualitative or quantitative research approach, social media analysis is best used as one component of many. As social data applications move to other asset classes, the same notion that made them successful with equities applies: social analytics is just one spoke on the wheel.

One of the biggest challenges for firms that seek to analyze social media is combating the common misperception that everyone selling social media analysis is selling the same thing. The reality is that no two analyses are the same. Within different focus areas and approaches to mining social media data, social media analytics companies can provide unique and yet equally significant results. Likewise, sell-side and buy-side firms can often use the same social media analytics signal or output in various ways depending on their research needs and styles of trading. As opposed to competing with one another, social media analytics firms often are complimentary, providing distinct offerings that can successfully co-exist.

Despite the recent growth spurt, mining social media for financial purposes is still very much in the early stages. Consumers of the data are just now testing the waters and paddling in the shallows; the deeper reservoirs of data and application are still waiting to be explored.

This 18-page TABB Group note, “Social Alpha 2.0 – Sifting Through a Sea of Signals,” delves into the different types of social media analytics firms and the emergence of new users and use cases. Additionally, the note defines challenges for the evolving field and looks at where it may be heading. In the report, TABB Group focuses on social media analytics start-ups within the financial markets vertical including the following firms: Alphamatician, Contix, Eagle Alpha, Heckyl, HedgeChatter, iSentium, Knowsis, Market Prophit, MarketPsych, PsychSignal, Social Alpha, Social Market Analytics, TheySay and TickerTags.