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Wall Street: Opportunities for Artificial Intelligence in Long/Short Equity


When we talk about the opportunities for Artificial Intelligence on Wall Street we tend to talk about and focus on the big and very real opportunities in trading and robo-advisors. But Yaz Romahi, Chief Investment Officer at J.P. Morgan Asset Management, makes a persuasive argument that perhaps the biggest opportunity is to be found in applying AI to long/short equity. Basically applying “new technologies” and “new techniques” (AI) to “new data”. The fact is that 90% of ALL data available in the world has been created in the last two years and the momentum is increasing.


There are a bunch of ways that AI can really help drive alpha in this space but applying AI to these three sources of alternative data is the only way to leverage them successfully.


Sensor Data: Sensor data consists, for example, data collected via satellite, geo-location data, data collected via IoT and more. For example, what do we do if we want to understand the state of the Chinese economy and, like most of the world, don’t believe their official numbers? Well for years folks have gathered and analyzed other forms of data to try and put together the puzzle of their economy. Iron ore shipments from Australia, coal from Brazil and even trying to get a reading of pollutant particulates over target cities are all data points that financial wizards collect and study. They also studied satellite images because they show how many trucks are leaving factories, how much smoke is coming out of the smokestacks and for how long and how many employees walk in and out of the door and more. The problem with all of this data (especially visual) data is that it takes a lot of people a long time to analyze it and that often by the time they find what they are looking for the data is yesterday’s news. AI changes this paradigm. It can analyze unlimited amounts of data in seconds.  

Business Process Data: Another big opportunity is applying AI to pour through company annual reports, transaction data, government agency data, etc. Companies like JP Morgan have literally hundreds (thousands) of high paid analysts doing this day in and day out. AI can replicate these activities at a fraction of the cost.

“Social” Data: Sentiment analysis is becoming an ever increasing weapon in the finance worlds arsenal but the truth is that the only way to pour through the sheer amount of data created on a micro-second basis by individuals via social media, web searches and more is to leverage AI and especially NLP.


There is no denying the fact that AI is going to change the structure of the  financial services industry perhaps more than any other. It will affect every aspect of the business. But I agree with Yaz, long/short equity is a great place to start.

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