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Over the past couple of years, artificial intelligence (AI) has seemingly taken centre stage. Many organizations are putting in mammoth efforts to develop large AI models to help make tasks easier, streamlined, and more efficient. With platforms like the Samco Trading App by Samco Securities, for instance, traders can leverage AI to optimise their portfolios efficiently.
AI has even made its way into finance and investing. In fact, many investors, from large institutions to retail individuals, have started to leverage the technology to make trading and investment decisions for them.
If you, like many other investors, are also planning to use artificial intelligence to improve the performance of your portfolio, here are some of the many ways in which you can leverage AI investing.
How to Use Artificial Intelligence To Enhance Your Portfolio
Artificial intelligence has been a game-changing tool for investors. It is revolutionising the way portfolios are managed by offering unseen insights into various aspects of investing. As an investor, you can use AI in a multitude of ways to improve your portfolio, some of which have been explained below.
Stock Selection
Stock selection is one of the most important aspects you must focus on when building a portfolio. Picking the right stocks can have a significantly positive impact on your portfolio’s performance. However, choosing stocks for a portfolio is far from easy. It involves sifting through numerous fundamental and technical data points, which can consume a lot of your time and effort if you choose to do it manually.
Since AI has the unique ability to analyse vast amounts of data, you can leverage its potential to speed up your stock selection process while simultaneously ensuring that you pick the right stocks. Stock screeners, for instance, are a good example of how AI stock analysis works.
Stock screeners are tools that use sophisticated machine learning algorithms to analyse historical stock data, financial statements, market trends, technical indicators, and even news sentiment. They help filter stocks based on the criteria that you select. For instance, suppose you want to filter stocks that have touched a 52-week high. The stock screener tool will analyse price-related data points and create a list of stocks that fit the chosen criteria. You can then pick stocks from the curated list and add them to your portfolios.
Portfolio Building
For a portfolio to be resilient and generate consistent returns, it must feature assets that align with your financial goals, risk profile, and investment horizon. Portfolio building is another task in which artificial intelligence has become proficient. By leveraging AI in the form of robo-advisors, you can significantly increase the efficiency of your portfolio.
Robo-advisors are dedicated programs that use artificial intelligence to analyse and identify the assets that you must invest in based on your risk tolerance, goals, and horizon. With the AI stock analysis feature that most robo-advisors have, you can completely automate the portfolio-building process. It also enables you to create a well-diversified portfolio that is free from human biases and aligned with your individual needs.
Portfolio Optimisation
For a portfolio to generate returns consistently over time, it needs to be optimised periodically using techniques like rebalancing and reconstitution. Instead of approaching portfolio optimisation manually, you can use artificial intelligence to automate the entire process.
For instance, there are many AI algorithms that can quickly analyse thousands of potential portfolio combinations to identify those that offer the best risk-adjusted returns for your given goals and risk tolerance.
You can also use artificial intelligence to dynamically adjust your portfolio allocations based on changing market conditions to maximise returns while managing downside risk. These systems analyse historical data and evaluate current market conditions to determine the right time to rebalance or reconstitute your portfolio.
Data Interpretation
As you have already seen, one of artificial intelligence’s most powerful capabilities is its ability to quickly process and interpret vast amounts of data. You can leverage this particular ability of AI to gain insights into your portfolio’s performance.
For instance, artificial intelligence algorithms can analyse factors such as your past trades, investment decisions, asset choices, and portfolio returns, among others. Based on the analysis, the algorithms will offer insights into how your portfolio has performed and what you can do to enhance its performance.
You can also use predictive analysis, which is a branch of AI, to forecast price movements of assets, the general direction of the market, and economic trends. With this information, you can make informed investment decisions related to asset allocation and exposure.
Risk Management
Risk management is an important part of investing. The financial markets can be highly unpredictable. Despite creating the ideal portfolio for your needs, you may end up facing losses or sub-par returns due to adverse market conditions.
With artificial intelligence, however, you can manage portfolio risks more effectively. For instance, you could use AI-powered stress testing tools to test even the most advanced options strategies to gain insights into how they would perform in different market scenarios. You can also use AI to suggest potential risk aversion techniques and measures to keep your portfolio protected from black swan events or extreme market conditions.
That’s not all. Some sophisticated artificial intelligence systems are also capable of continuously monitoring portfolio risks. These systems are designed to alert you when potential issues arise before they have time to cause significant problems for your portfolio, so that you may take evasive action to keep your investments protected.
Trade Management
Artificial intelligence is not only revolutionising investing but is also drastically changing the way we trade. By using AI to trade stocks, you can make the entire process more efficient and profitable. For instance, AI-powered high-frequency trading (HFT) systems can execute thousands of trades per second, enabling you to capitalise on even the tiniest price discrepancies across different assets and markets.
Meanwhile, with algorithmic trading systems, you can execute large orders over time by splitting them into smaller segments. These systems use artificial intelligence to determine the ideal order size based on the level of market volatility to minimise the impact on prices, leading to potentially better average prices than what would have been possible with manual trading.
That’s not all. Many stockbroking platforms now enable investors to integrate algorithms with their order management systems. This integration enables the systems to automatically execute a trade if certain criteria are met. The use of AI to manage your trades can protect your portfolio and positions from making decisions fueled by emotions like fear and greed, leading to better outcomes and returns.
Additionally, with artificial intelligence, advanced options strategies that feature multi-leg trades are now possible. Even beginner traders with little experience can execute complex strategies easily.
Conclusion
AI investing is no longer a futuristic concept but instead a reality. From stock picking and personalised portfolio building to risk management and portfolio optimisation, artificial intelligence is transforming every aspect of investing.
That being said, it is crucial to remember that while AI stock analysis may offer unique and unprecedented insights, it should always be used to complement rather than replace human judgement.
If you plan to incorporate AI investing but are unsure where to begin, consider starting with robo-advisors or AI-powered analysis tools. As you become more comfortable with the technology and its capabilities, you can consider using AI to trade stocks.
To make the most of new technological developments in stock trading and investing, open a demat account with Samco Securities. With Samco’s innovative trading application, you can get access to a multitude of useful features, such as live market updates, a powerful charting experience, a margin trading facility (MTF), margin against shares, and even algo trading.
What’s more, when you open a demat account with Samco, you also get access to our flagship feature, Options B.R.O., which is a sophisticated tool that lets you build your own advanced options strategies and test them against different market scenarios. So, go ahead and sign up for a trading and demat account with Samco and supercharge your trading and investment experience.
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