90% of Machine Learning Models for Finance Generate False Signals for Investors. Alpha Vertex Algorithms Shown to Be Effective in Trading by Multi-Billion Dollar Hedge Fund
Alpha Vertex, a financial technology company that offers analytical solutions powered by proprietary AI algorithms to financial institutions and investors, announced the launch of Alta, its alternative data product. Created with enriched alternative datasets using big data techniques such as NLP, anomaly detection, sentiment and relation extraction, Alpha Vertex’s proprietary AI algorithms produce informational advantages and detection of new investment risk profiles for investors.
Alpha Vertex takes care to control model complexity to avoid over-extrapolation and rigorously tests for the probability of false discovery. Its alternative data product and a few of its machine learning models are currently in use by a multi-billion dollar hedge fund.
The use of alternative data products to glean insights is nothing new to hedge funds who have been early adopters of the solutions. In 2018, Deloitte predicted that alternative data will likely transform active investment management over the next five years.
Yet, studies and leading research reports have demonstrated that most ML models and investment strategies which use alternative data and other datasets uncovered by companies are false.
“There is a growing number of companies offering Al algorithms in a box and use of alternative datasets that claim to provide an advantage or ‘alpha signals’ to investors,” says Mutisya Ndunda, Co-founder and CEO of Alpha Vertex. “I would say that 90% of these are false signals for investors. We are in the 10% category because we developed an approach to root out false positives as much as possible. We don’t offer a massive array of signals and ML models and see what would work because, statistically speaking, a few random options out of 100 models will work every time. We offer very few and intentionally selected machine learning models to financial institutions. The random approach is not a long-term investment strategy.”
“Alpha Vertex has produced an industry leading alternative data product that will change how major financial institutions and investors make investment decisions,” says Jillian Williams at Anthemis Group, the leading global fintech investor.
“We eliminate false positives or false signals for financial institutions and investors in several ways,” says Ndunda. “First, we hire data scientists and engineers with domain expertise in finance. Hiring a data science grad with no financial background is like hiring a general practitioner to do neurosurgery. Second, our strategy is to be highly diverse in our machine learning approach and achieve as low a correlation as possible. What we are ultimately looking to achieve for investors are statistically significant signals or signals not otherwise generated randomly.”
“Through its rigorous methodologies and unique approach, Alpha Vertex is positioned to become a breakthrough company in the machine learning and fintech space,” says Steven Kuyan, Managing Director at NYU Tandon Future Labs, where Alpha Vertex is a portfolio company.
“We are breaking the status quo by using our proprietary AI technologies to uncover insights buried in large datasets,” says Jennifer Litorja, Advisor. “Our vision is to give everyday investors access to what a small handful of funds in the secretive $3.2 trillion hedge fund industry possess: sophisticated ML models that generate strong investment returns. We are fundraising on SeedInvest now to realize this big picture vision — we have already raised over $1M from early stage investors Anthemis Group and ff Venture Capital.”