The game-changing potential of AI in the investment space has just begun to unfold.
AI
AI is becoming common in the investment sector. Investors are increasingly relying upon AI tools to create diversified portfolios. The technology has the potential to maximise their return potential, bolster their risk management strategies, and help them make informed data-based investment decisions.
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AI in Investment Space: Why is it relevant for Investors?
Financial technology (Fintech) and investment fields are going through a revolutionary change. Technology integration is behind this tectonic shift, and AI is becoming a game changer for investors. The technology equips investors with comprehensive tools for analysing data, strengthening compliance, bolstering risk management, and managing ambiguity. No wonder Custom Markets Insights estimates the AI size in Fintech Space to reach 45.07 USD bn in 2032 from 12.32 USD bn in 2023, estimating a CAGR of 15.5% in the given period.
AI capabilities: holistic coverage
The strategic benefit of AI is its ability to equip investors with multifaceted capabilities. From offering real-time data-driven insights to forecasting market trends and conducting sentiment analysis, AI can do it all for investors. Advanced AI algorithms, when used in conjunction with Big Data, can map risk-return profiles of investors to offer personalised recommendations for their portfolios. The technology can also perform market analysis, stress testing, and scenario evaluation to suggest investment goals for individual investors. According to Kar Yong Ang, Octa broker financial market analyst, ‘AI seems to be highly efficient in creating predictive models based on extensive historical data sets. It has already become a valuable addition to traditional technical and fundamental analysis that many traders use in their sessions.’ In addition, AI tools are becoming a significant deterrent against cyber fraud. AI-enabled multi-factor authentication, zero-trust security, and modular architecture are great ways to keep the investment sector safe from the prying eyes of hackers.
AI for Investors: key capabilities and advantages
a) Trading analytics: A great enhancement in speed, accuracy, and scalability can be achieved through AI-enabled trading analytics. AI algorithms use machine learning (ML) techniques to help investors identify patterns, track price movements, and leverage emerging opportunities while minimising exposure to risky trades. Further, these capabilities can be augmented by integrating natural language processing (NLP) and sentiment analysis to offer a holistic trading package to investors.
b) Virtual assistants: The emergence of virtual assistants (VAs) is quickly rising up the popularity ladder in the investment space. Also referred to as robot advisors, these fully automated VAs can bring comprehensive functionality to the table. VAs can assist investors in making fast, reliable, and informed decisions, from analysing financials to scheduling trades and processing orders. These advisors can also offer personalised recommendations, optimise portfolios, and ensure tax compliance for investors as per the statutory provisions.
c) Forecasting markets: The crucial role of AI algorithms in predicting future market trends couldn’t be overemphasised. AI can analyse arising trading patterns and evaluate their potential to impact the investment space in the medium to long-term future. The AI tools can also rank emerging trends on their investment potential to help investors maximise their return on investment. AI models such as long short-term memory networks and recurrent neural networks can learn from past data and predict future market trends with desired levels of reliability and accuracy.
d) Risk management: Arguably, the most significant use of AI is its ability to hedge investors against potential market risks. AI algorithms consider past data and extrapolate it to predict potential risks that can adversely impact the investment scenario. Accordingly, AI programs can offer timely alerts and help investors create an optimum portfolio by balancing risk factors and return potential. This proactive approach is very useful in mitigating potential losses while enhancing returns for investors at the same time.
e) Personalised portfolios: AI tools can offer personalised recommendations for buying and selling shares in the market. The technology can analyse investors' financial goals, risk tolerance, and sectoral preferences to help them purchase assets for their portfolios. Take, for instance, ChatGPT, which can help investors with its comprehensive, all-around capabilities. The AI-powered tool can analyse the business models of target companies, conduct their SWOT analysis, and evaluate their earning reports. The tool is also beneficial in assessing the ESG credentials of firms and analysing their risk profiles to help investors decide whether to invest in a specific company. Given below are some common prompts that you can use to access insightful information from ChatGPT on the investment front:
- analyse the business model of the XYZ company
- outline how easy it is for the ABC startup to scale its business
- write the SWOT analysis of the XYZ firm
- list five key points of the ESG policy document of the ABC company.
Conclusion
The game-changing potential of AI in the investment space has just begun to unfold. By leveraging trading analytics, virtual assistance, and forecasting capabilities of AI, investors can make informed decisions and significantly enhance their return potential. The AI tools can also help manage risks and create personalised portfolios for investors. Going forward, AI integration in the investment space will intensify further and likely focus on the generative dimension of the technology.
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