5 Ways Data Analytics Helps Investors Maximize Stock Market Returns

Data analytics technology has helped investors improve the ROI of their strategies.

10 Min Read
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We have previously talked about the reasons that data analytics technology is changing the financial industry. One of the most significant changes has been in the field of stock market investing.

Analytics Insight has touched on some of the benefits of using data analytics to make better stock market trades. They point out that value investors are using machine learning technology to anticipate future stock prices. They can make these determinations with existing financial ratios, such as P/E ratios, ROE (return on equity), debt-to equity and other variables.

Technical analysts can also benefit from investing in data analytics technology. They can use analytics technology to better monitor trends in the market, so they can anticipate future price directions based purely on prior price movements.

Regardless of your investing philosophy, you are going to want to be aware of the advantages of using analytics to improve your investing decisions. Keep reading to learn more.

Data Analytics Helps Investors Create More Profitable Strategies

The stock market is the preferred choice of millions of Americans when it comes to building wealth. It’s true that there are fluctuations in the stock market, but investing in the stock market is a great way to generate a good return with your financial capital over the long-term. The stock market is always going to have some wild swings, and this is why you need to start investing today to set up a more prosperous and inviting future. Read more about Asian equities and where to from here.

Unfortunately, coming up with a good stock market strategy can be challenging due to the efficient market hypothesis. In order to outperform the market, you will need to identify undervalued assets. This is where big data technology can be helpful.

If you really want to make the most of your investing strategy, then you are going to want to utilize data analytics to the best of your ability. Here are some strategies that can help you accomplish this.

Use Data Analytics to Find Truly Undervalued Stocks Instead of Following Hot Stocks

It’s common to hear about one stock investment turning out to be a life-changing one. Game Stop in early 2021 comes to mind. However, these types of short-term bets involving a significant amount of money are too risky as you never know what’s going to happen next with a particular stock.

This is why experienced investors across the globe recommend everyday investors to make use of index funds to make money in the stock market. Investors that receive the highest returns will retain those investments for a long time to make good money.

Index funds often have low fees, and you get to buy the entire stock market with this investment. These funds allow you to diversify and spread your risk across a wider basket of stocks which means your portfolio will never be significantly affected by one crashing company.

If you want to take the risk of buying an individual stock, you can allot a small part of the overall portfolio for that play. Make sure you only invest the money you are comfortable losing.

If you want to outperform the market, then you are going to have to find stocks that are undervalued. This is a lot easier with data analytics tools.

Ramneet Rekhi of New York University and his colleagues from Stanford discussed this in their paper titled Finding Undervalued Stocks with Machine Learning. The authors concluded that nonlinear support vector machines can help investors choose investments with the best future returns. They have shown that it is possible to use data analytics and machine learning tools to identify stocks that will increase at least 50% over the course of a year, which is around six times the market average.

Use Data Analytics to Ensure Your Portfolio is Well Diversified

Diversification is the key to everyday investing. It simply means that you need to put your money in a variety of investments. Paula Volent, an investment manager, recommends investing in stock index funds as these funds offer the best return over the long-term.

She recommends investing in a broad index fund covering US stock market, an index fund for emerging markets as well as an index fund for foreign developed markets.

You need to use data analytics to identify the best opportunities to beat the market. You will have an easier time diversifying with assets in markets that are less efficient, such as cryptocurrencies, because the price movements are easier to exploit. You can also use data mining and market price aggregation tools such as those from Datarade and the charts from Financial Times to better assess the prices of financial assets.

Anticipate the Future Value of Your Portfolio with a Budget

Volent recommends making investments in assets likely to do well when the stock market isn’t doing great. It could mean real estate funds and treasury bonds. There are a variety of methods to figure out the proportion of each of these components that is right for someone.

One of the methods is known as target date or age based method where a mix of these different asset types is put together by an index fund based on the number of years remaining in your retirement.

You will have an easier time forecasting the future value of your portfolio with data analytics tools. SmartAsset.com and NerdWallet have calculators to anticipate the future earnings of your portfolio based on expected ROIs. You can use them in conjunction with data analytics tools to predict the ROIs, which can be plugged into that field in the calculators.

Identify Opportunities to Reduce Debt

Experienced investors strongly recommend getting in touch with a financial advisor. There are all kinds of financial advisors and it is recommended to speak to an expert who works for a fee and not on commissions. Experts working on commission basis are known for driving their clients from one investment to another to make more money for themselves.

After finding someone who is right for you, it is recommended to meet them at least once annually or once every 2 to 3 years. Make sure you work with someone who is ready to work for a fee as it will save you a ton of money over the long run.

You can find a number of great ways to reduce debt with data analytics. You can use data mining tools like those mentioned here on LinkedIn to get your personal financial house in order.

Optimize Your Investments

Big fluctuations in the stock market shouldn’t startle you. When you have a diverse portfolio, it offers you an opportunity during such downturns. When there are big fluctuations in the market, you may sell assets that have moved up in value and use that money to invest in assets that have become cheaper. Use ESG News to research your investments.

Let’s take an example.

Let’s assume that half of your total investments are in a mix of stock index funds. If the stock market crashes, bonds are going to rise in value which means the stock part of your total portfolio is now only worth 45% of the total portfolio value.

If you want to make money in this market, you should sell some bonds and use that money to invest in stocks in order to maintain that 50-50 balance in your portfolio.

The best way to make money by investing is to buy low and sell high. However, there is no point in doing it randomly. It’s important that you stick to the original plan of maintaining the target allocation in the investment portfolio.

Overall, you shouldn’t panic when there is a crash in the stock market even when others are panicking and selling their stocks. Your portfolio could be irreparably damaged.

Use Data Analytics to Improve Your Stock Investing Strategy

Data analytics has changed the investing game forever. You want to understand the analytics strategies that can help you get the highest ROI.

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