Which subreddit most accurately predicts stock prices?
Overview
In January 2021, retail investors took the investing world by storm when it made GameStop prices jump 1000% percent in two weeks. This was a revolt against wall street that originated on a subreddit called “WallStreetBets”. This had ripple effects throughout wall street which ended up with the Senate getting involved. All this is a sign of a new wave of young retail investors disruption an industry traditionally dominated by institutional players.
Reddit has been at the center of this storm, with WallStreetbets being a significant source of information and influence on stock prices. I wanted to investigate whether some threads on Reddit provided better information than others and whether some subreddits were better at predicting stock prices.
After some research, I made a list of the most popular investment-related Subreddits.
I then had to decide which company to look at. I decided to look at my three favorite companies (Tesla, Microsoft, and Google), all of which I am personally invested in, to see whether these Subreddits could in fact help my investment decisions.
Method
I used a Reddit API (RedditExtractoR) to scape the related subreddits to get the titles of threads, and their publishing dates.
I then used tidyquant to get the relevant daily stock prices.
After cleaning up the data and merging it, I conducted a sentiment analysis (using the syuzhet package) on the relevant threads and then correlated that with the relevant stock prices to determine whether there was a significant correlation.
TESLA
I first plotted the sentiment analysis over the past year
I then determined the stock price of Tesla over the same period
I then plotted the closing price and sentiment score per day, which on aggregate had a correlation of 0.327.
I then investigated the individual trends between the various subreddits:
Here we can see that algotrade seems to be the worst subreddit in terms of correlation with stock prices and sentiment.
I then found the correlation between the sentiment of each subreddit with movements in the stock price
Discarding any correlation that has less than 20 data points, we can see that the Security analysis subreddit seems to be the most highly correlated with stock prices, with investing as a closer second.
Finally, I cleaned the threads for stopwords and determined which specific words had the highest correlation with stock prices:
Alternatively, in word cloud format:
MIRCOSOFT
Sentiment analysis over the past year:
The stock price of Microsoft over the same period:
Disregarding the subreddits with less than 20 observations, it seems like Security analysis is once again the one with the highest correlation, with WallStreetbets as a second.
Here we can see that Finance, Securityanalysis and algotrading are negatively correlated with stock prices, but they all have relatively low observation suggesting that we cannot determine whether there is a meaningful relationship.
All in all, it is clear that to accurately determine which subreddit is the best at predicting stock prices, we first need enough data points to measure a significant correlation.
Correlation between the different subreddits, with the total correlation being 0.0767:
Sentiment analysis over the past year:
The stock price of Microsoft over the same period:
Excluding Subreddits with less than 20 observations, we can see that RobinHood and Finance are among the best predictors subreddits.
For the total combined data set:
Individually analyzed based on Subreddit:
Here we can see that algotrading and Robinhood performed the least well with both having a negative correlation between their sentiment score and closing price. Finance and Robinhood seems to be the best predictors.
Correlation between the different subreddits, with the total correlation being 0.226:
In conclusion, it is difficult to determine which subreddit is the most accurate because it varies from company to company, depending on how much information actually concerns or mentions the company.
Nevertheless, based on the companies we have analyzed, this would be my ranking: