Modelling A.I. in Economics

Can stock prices be predicted? (WY Stock Forecast) (Forecast)

Prediction of future movement of stock prices has been a subject matter of many research work. There is a gamut of literature of technical analysis of stock prices where the objective is to identify patterns in stock price movements and derive profit from it. Improving the prediction accuracy remains the single most challenge in this area of research. We propose a hybrid approach for stock price movement prediction using machine learning, deep learning, and natural language processing. We evaluate Weyerhaeuser prediction models with Modular Neural Network (DNN Layer) and Spearman Correlation1,2,3,4 and conclude that the WY stock is predictable in the short/long term. According to price forecasts for (n+6 month) period: The dominant strategy among neural network is to Sell WY stock.


Keywords: WY, Weyerhaeuser, stock forecast, machine learning based prediction, risk rating, buy-sell behaviour, stock analysis, target price analysis, options and futures.

Key Points

  1. Technical Analysis with Algorithmic Trading
  2. Game Theory
  3. What are buy sell or hold recommendations?

WY Target Price Prediction Modeling Methodology

Predictions on stock market prices are a great challenge due to the fact that it is an immensely complex, chaotic and dynamic environment. There are many studies from various areas aiming to take on that challenge and Machine Learning approaches have been the focus of many of them. There are many examples of Machine Learning algorithms been able to reach satisfactory results when doing that type of prediction. This article studies the usage of LSTM networks on that scenario, to predict future trends of stock prices based on the price history, alongside with technical analysis indicators. We consider Weyerhaeuser Stock Decision Process with Spearman Correlation where A is the set of discrete actions of WY stock holders, F is the set of discrete states, P : S × F × S → R is the transition probability distribution, R : S × F → R is the reaction function, and γ ∈ [0, 1] is a move factor for expectation.1,2,3,4


F(Spearman Correlation)5,6,7= p a 1 p a 2 p 1 n p j 1 p j 2 p j n p k 1 p k 2 p k n p n 1 p n 2 p n n X R(Modular Neural Network (DNN Layer)) X S(n):→ (n+6 month) R = 1 0 0 0 1 0 0 0 1

n:Time series to forecast

p:Price signals of WY stock

j:Nash equilibria

k:Dominated move

a:Best response for target price

 

For further technical information as per how our model work we invite you to visit the article below: 

How do AC Investment Research machine learning (predictive) algorithms actually work?

WY Stock Forecast (Buy or Sell) for (n+6 month)

Sample Set: Neural Network
Stock/Index: WY Weyerhaeuser
Time series to forecast n: 02 Nov 2022 for (n+6 month)

According to price forecasts for (n+6 month) period: The dominant strategy among neural network is to Sell WY stock.

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Yellow to Green): *Technical Analysis%

Adjusted IFRS* Prediction Methods for Weyerhaeuser

  1. The methods used to determine whether credit risk has increased significantly on a financial instrument since initial recognition should consider the characteristics of the financial instrument (or group of financial instruments) and the default patterns in the past for comparable financial instruments. Despite the requirement in paragraph 5.5.9, for financial instruments for which default patterns are not concentrated at a specific point during the expected life of the financial instrument, changes in the risk of a default occurring over the next 12 months may be a reasonable approximation of the changes in the lifetime risk of a default occurring. In such cases, an entity may use changes in the risk of a default occurring over the next 12 months to determine whether credit risk has increased significantly since initial recognition, unless circumstances indicate that a lifetime assessment is necessary
  2. Subject to the conditions in paragraphs 4.1.5 and 4.2.2, this Standard allows an entity to designate a financial asset, a financial liability, or a group of financial instruments (financial assets, financial liabilities or both) as at fair value through profit or loss provided that doing so results in more relevant information.
  3. When assessing a modified time value of money element, an entity must consider factors that could affect future contractual cash flows. For example, if an entity is assessing a bond with a five-year term and the variable interest rate is reset every six months to a five-year rate, the entity cannot conclude that the contractual cash flows are solely payments of principal and interest on the principal amount outstanding simply because the interest rate curve at the time of the assessment is such that the difference between a five-year interest rate and a six-month interest rate is not significant. Instead, the entity must also consider whether the relationship between the five-year interest rate and the six-month interest rate could change over the life of the instrument such that the contractual (undiscounted) cash flows over the life of the instrument could be significantly different from the (undiscounted) benchmark cash flows. However, an entity must consider only reasonably possible scenarios instead of every possible scenario. If an entity concludes that the contractual (undiscounted) cash flows could be significantly different from the (undiscounted) benchmark cash flows, the financial asset does not meet the condition in paragraphs 4.1.2(b) and 4.1.2A(b) and therefore cannot be measured at amortised cost or fair value through other comprehensive income.
  4. The definition of a derivative refers to non-financial variables that are not specific to a party to the contract. These include an index of earthquake losses in a particular region and an index of temperatures in a particular city. Non-financial variables specific to a party to the contract include the occurrence or non-occurrence of a fire that damages or destroys an asset of a party to the contract. A change in the fair value of a non-financial asset is specific to the owner if the fair value reflects not only changes in market prices for such assets (a financial variable) but also the condition of the specific non-financial asset held (a non-financial variable). For example, if a guarantee of the residual value of a specific car exposes the guarantor to the risk of changes in the car's physical condition, the change in that residual value is specific to the owner of the car.

*International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world.

Conclusions

Weyerhaeuser assigned short-term Baa2 & long-term Ba3 forecasted stock rating. We evaluate the prediction models Modular Neural Network (DNN Layer) with Spearman Correlation1,2,3,4 and conclude that the WY stock is predictable in the short/long term. According to price forecasts for (n+6 month) period: The dominant strategy among neural network is to Sell WY stock.

Financial State Forecast for WY Weyerhaeuser Stock Options & Futures

Rating Short-Term Long-Term Senior
Outlook*Baa2Ba3
Operational Risk 8965
Market Risk7675
Technical Analysis7644
Fundamental Analysis6054
Risk Unsystematic7873

Prediction Confidence Score

Trust metric by Neural Network: 84 out of 100 with 476 signals.

References

  1. T. Shardlow and A. Stuart. A perturbation theory for ergodic Markov chains and application to numerical approximations. SIAM journal on numerical analysis, 37(4):1120–1137, 2000
  2. Dimakopoulou M, Zhou Z, Athey S, Imbens G. 2018. Balanced linear contextual bandits. arXiv:1812.06227 [cs.LG]
  3. Barkan O. 2016. Bayesian neural word embedding. arXiv:1603.06571 [math.ST]
  4. Matzkin RL. 1994. Restrictions of economic theory in nonparametric methods. In Handbook of Econometrics, Vol. 4, ed. R Engle, D McFadden, pp. 2523–58. Amsterdam: Elsevier
  5. Sutton RS, Barto AG. 1998. Reinforcement Learning: An Introduction. Cambridge, MA: MIT Press
  6. Chernozhukov V, Chetverikov D, Demirer M, Duflo E, Hansen C, Newey W. 2017. Double/debiased/ Neyman machine learning of treatment effects. Am. Econ. Rev. 107:261–65
  7. Babula, R. A. (1988), "Contemporaneous correlation and modeling Canada's imports of U.S. crops," Journal of Agricultural Economics Research, 41, 33–38.
Frequently Asked QuestionsQ: What is the prediction methodology for WY stock?
A: WY stock prediction methodology: We evaluate the prediction models Modular Neural Network (DNN Layer) and Spearman Correlation
Q: Is WY stock a buy or sell?
A: The dominant strategy among neural network is to Sell WY Stock.
Q: Is Weyerhaeuser stock a good investment?
A: The consensus rating for Weyerhaeuser is Sell and assigned short-term Baa2 & long-term Ba3 forecasted stock rating.
Q: What is the consensus rating of WY stock?
A: The consensus rating for WY is Sell.
Q: What is the prediction period for WY stock?
A: The prediction period for WY is (n+6 month)

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