Context Analytics (CA) is the industry leader in processing and structuring textual data to deliver actionable insights, particularly in sentiment analysis. CA’s proprietary tools ingest and analyze data from a range of sources, including Twitter, StockTwits, Reddit, financial news, corporate filings, and even custom inputs, to help investors and researchers derive investable signals. Today, we’re diving into one of CA’s flagship products—the Twitter S-Factor feed, a core tool for measuring and tracking sentiment on Twitter.
The Twitter S-Factor feed quantifies the sentiment of Twitter messages on a scale from -1.000 to 1.000. The feed aggregates these sentiment scores over a 24-hour period and compares them to a 20-day historical baseline. This comparative analysis creates S-Factors, which offer unique insights into how sentiment around a particular security is evolving in real-time compared to its past.
The S-Score: A Sentiment Snapshot
At the heart of the S-Factor feed is the S-Score, which captures how positive or negative the sentiment is surrounding a specific security. What makes the S-Score valuable is its cross-sectional comparison, allowing investors to gauge a security’s sentiment without bias from message volume. Each security’s sentiment is evaluated against its own historical baseline, providing a clear picture of how sentiment stands relative to its normal patterns.
The Delta S-Score: A Deeper Layer of Sentiment Insight
While the S-Score gives a snapshot of sentiment, analyzing changes in sentiment—what we call the Delta S-Score—can be just as important, if not more so, for detecting sentiment trends. The Delta S-Score isolates the sentiment movement over the past 24 hours, highlighting shifts that might signal future price movement.
For example, an S-Score of 1 could suggest positive sentiment, but the context of that score matters. If the Delta S-Score moves from -1 to 1, it indicates a dramatic positive shift in sentiment, which might signal strong future performance. However, an S-Score of 1 with a Delta moving from 3 to 1 represents a decline in sentiment momentum, which might lead to a different outcome
By analyzing the Delta S-Score, we can better understand the underlying trends driving sentiment.
A Trading Strategy Powered by Sentiment Shifts
To put this metric to work, we explored a trading strategy that leverages both sentiment scores and message volume. First, we filter for securities where the Standardized Volume (SV-Score) is greater than zero, meaning these securities are experiencing more Twitter conversation than usual.
Next, we calculate the Delta S-Score by subtracting the S-Score from the previous market day’s S-Score. This gives us the sentiment change over the last 24 hours. We then bucket securities with a price greater than $5 into quintiles based on their Delta S-Score. From there, we hold the securities from close to close and rebalance daily, compounding the returns.
The Results: Consistent Alpha Generation
The results of this strategy are compelling. Over the past five-plus years, we've observed a clear monotonic spread across the Delta S-Score quintiles. Securities in the top quintile—those with the most positive sentiment shifts—outperformed, while those in the lowest quintile underperformed. This performance is reflected in a well-balanced long/short strategy that consistently delivers alpha.
The strategy boasts a Sharpe ratio of over 1 and a Sortino ratio of over 2, indicating strong risk-adjusted returns with lower downside risk. This demonstrates that when securities are being mentioned more frequently on Twitter, the change in sentiment can be just as important as the isolated S-Score in predicting future price movements.
Unlocking Alpha with CA’s S-Factor Feed
This example illustrates just one of the many ways that Context Analytics’ S-Factor feed can be used to generate alpha. Whether you’re analyzing sentiment or shifts in sentiment, CA’s tools provide a granular view of social sentiment, helping investors capture opportunities that traditional data sources might miss.
In today’s fast-moving markets, understanding how sentiment is trending—rather than just where it stands—can give traders and investors a significant edge. With the Twitter S-Factor feed, CA empowers its clients to stay ahead of the curve, turning sentiment data into actionable signals for superior performance. For more information, visit www.contextanalytics-ai.com .