Vital Questions for Statistical Analysis:
1) Price Movement Probability:
- What’s the statistical frequency of price increases vs decreases?
- How often do similar stocks move up/down in comparable market conditions?
- What’s the historical volatility and price distribution?
2) Magnitude Assessment:
- What’s the average size of upward vs downward moves?
- What are the maximum historical gains/losses?
- How do earnings/revenue changes correlate with price changes?
3) Risk Analysis:
- What’s the current NPV vs Market Cap ratio?
- How leveraged is the balance sheet?
- What’s the cash burn or generation rate?
Current AI Adoption Barriers:
- Traditional reliance on human analysts
- Limited awareness of AI capabilities
- Resistance to quantitative approaches
- Investment industry inertia
Expected Timeline for AI Adoption:
- Institutional investors: Already beginning
- Financial advisors: 2-3 years
- Retail investors: 3-5 years for widespread adoption
Three important facts for fiduciaries:
- Without statistical analysis of both upside and downside scenarios, investing becomes speculation rather than calculated risk-taking.
- Data sciences and AI tools can process vast amounts of historical data to generate these probabilities, making them invaluable for risk assessment.
- Data science will add tremendous value to your clients’ portfolios, your bottom line and both you and your clients’ peace of mind.