Every top US stock is closely followed and researched by investors worldwide. And, there are opinions shared by investors on social media platforms as well. Conversations around stocks are gaining ground and have a role to play in the way people buy and sell stocks. To track the sentiments in stocks there is a new index to capture such information floating around on the social media platform. S&P DowJones Indices has teamed up with Twitter to create S&P 500Twitter Sentiment Index which is designed to reflect the performance of the 200 constituents of the S&P 500 with the most positive sentiment on Twitter.
The launch date of S&P 500 Twitter Sentiment Index is November 18, 2021. Since its inception, the index is around the same level and as on Jan 5, 2022, the index was at 176.32. But, hypothetically back-tested results of S&P 500 Twitter Sentiment Index shows a return of about 21 per cent over the last 1-year.
How far the S&P 500 Twitter Sentiment Index helps investors to take an investing decision or become an indicator to track while investing remains to be seen in the long run.
The index series consists of S&P 500 Twitter Sentiment Index and S&P 500 Twitter Sentiment Select Equal Weight Index.
S&P 500 Twitter Sentiment Index measures the performance of 200 S&P 500 constituents with the highest sentiment scores. The index constituents are float-adjusted market capitalization (FMC) weighted, subject to a single constituent weight cap of 10%.
S&P 500 Twitter Sentiment Select Equal Weight Index measures the equal-weighted performance of 50 S&P 500 constituents with the highest sentiment scores.
The index selects constituents from the S&P 500 universe that have the most positive sentiment over a fixed time period and have sufficient Tweet volume to be scored. Each stock is scored daily, and these stocks’ scores are aggregated on a monthly basis, with more recent activity receiving higher weights, given that recent sentiment often has a greater impact. All of these final monthly scores are ranked in order to create the index reconstitution for the next monthly time period.
These Tweets are screened and scored via machine learning and natural language processing (NLP) to calculate a daily score for each stock in the S&P 500 and select the top constituents to include in each of the S&P 500 Twitter Sentiment Indices at monthly rebalance.
The S&P 500 Twitter Sentiment Index Series was created to reflect the performance of the names with the most positive sentiment within the S&P 500 over a given period of time.
Social media has lots of financial information and opinions shared by the investors community. Investing decisions should not be solely based on the social media posts and proper research needs to be done before investing. It remains to be seen if the S&P 500 Twitter Sentiment Index emerges as a sound indicator for global investors.
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