Next Big Futures
In 2016, an algorithm named uipATH became a household word in the financial services industry.
At the time, it was used to create automated investment portfolios that were designed to outperform their underlying index.
In a study published in the journal Nature Methods, researchers found that the algorithm outperformed the underlying asset class by 2.8 percent.
And, if you’re wondering how it did it, the algorithm is based on a new technique called neural nets, which allow researchers to embed neural networks into other mathematical models.
That means that uipaths are no longer just a way to optimize an investment portfolio, but to design a computer algorithm that can outperform the underlying stock market.
uipathy’s creators, a team of researchers at MIT, the University of Texas, and the University in Oxford, say the algorithm uses deep learning, an artificial neural network, to recognize the stock market’s performance and act accordingly.
The team’s findings could help improve investment decisions for both investors and managers.
The first step, then, is to understand how uipatha works.
“It’s very powerful, and we’re very excited about its potential,” says co-author Alexei S. Matveyev, a professor of computer science at MIT.
“This is a way of learning more about stock markets, but the more we understand about this algorithm, the better we’ll be able to do things like, for example, designing the best algorithms for analyzing stock market data.”
The team first needed to learn how to write a neural network.
To learn how a neural net learns, Mathewsiv and his collaborators used a technique called convolutional neural networks, which basically take the input data and create a “supervised” version of it, which means the neural network can learn a lot more about the data.
This new model, uipatheth, then uses convolutionality to train its model, and it learns more about a stock market by training the model with different data.
The researchers then tested uipateth’s performance on a sample of stock portfolios and found that its performance improved dramatically when they used the data from three different stock markets: the Dow Jones Industrial Average, the S&P 500, and Standard & Poor’s 500.
uippath’s results were similar to those of stock-market analysis systems like Bogleheads and FactSet, which have been used for years to improve investor decisions.
The results are still promising, but there’s more work to do.
“We want to see if this improves on stock market performance,” Mathewsives said.
“In the future, if we can get more data, we want to look at other stock markets.”
For now, Mathewives and his team have only seen a small fraction of the results that their neural network achieved.
“The next step is to see how it can do better, and what other algorithms can we apply to these stock markets,” Mathewivas says.
“That’s really the next big challenge, because there are many, many more things that can be done with neural networks.”