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Quantitative Investing Blog - Lucena Research

Consumer Emotion Signals for Forecasting Tradable Assets

Announcing a new partnership with Cognovi Labs, a leader in consumer behavioral science powered by AI. 

 An Interview with Cognovi Labs

We are excited to highlight our most recent alternative data provider partner, Cognovi LabsCognovi engaged Lucena to provide a 3rd party, unbiased empirical validation of their consumer intent and emotion data.

Cognovi Labs quantifies how people feel, and what they will do next. By deciphering the complexities of human psychology and leveraging the power of AI, Cognovi AI extracts people’s emotional undertones from social media conversations and transforms them into predictions about consumers’ intent and future actions.

Lucena was tasked with identifying actionable insights by combining Cognovi's data with additional data factors. The team analyzed, feature engineered, and constructed multi-factor models by combining multiple data sets to deliver empirical evidence of Cognovi's data. The successful findings were presented through out of sample backtests, and perpetually tracked model portfolios

We spoke with Colin Butler, Global Revenue Officer at Cognovi Labs for an overview of how AI can be applied to human emotion in order to extract signals for investment. 

 

  1. Tell us about Cognovi’s roots and how it evolved into the company it is today.
  1. Cognovi Labs’ technology in Emotion AI was first developed at Wright State University in Dayton Ohio, one of the top research centers in semantic processing and AI. Cognovi Labs was established in 2016 and given an exclusive license to the University’s technology, by then in its fourth generation.

  2. Since then, Cognovi Labs has further enhanced its IP to accelerate commercialization in the financial services and corporate verticals.

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  4. What were some of the initial challenges you faced as a company?

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  6. Our biggest challenge is educating potential clients about the differences between sentiments and emotions. Given that the majority of human decisions are based on emotions, Cognovi’s Emotion AI is able to quantify what people will do next.

  7. In contrast, sentiment analysis is rarely predictive as it only captures how people “talk the talk,” not how they “walk the walk.”


  1. How is Cognovi different from other AI and data research or sentiment providers?

Cognovi’s predictive power comes from its patented technology to extract emotions from text-based data and its proprietary algorithm in behavioral psychology to translate them into behavioral signals.

This allows Cognovi’s Emotion AI to anticipate what the consumer will do next, versus describing how positive or negative someone is relative to a company or product.  

  1. What are the main factors that lead you to engage Lucena?

We initially engaged Lucena for an independent analysis of our Emotion AI data.

The fact that Lucena immediately uncovered significant sources of alpha in Cognovi’s alternative data speaks volumes to both their capabilities and Cognovi’s predictive power.  

  1. How would you describe Lucena’s offerings and their approach to analyzing your data?

Lucena has created a powerful and institutional-strength AI platform to systematically analyze third-party data in the context of investment signals.

Once they find a new source of alpha, their platform allows for integration of various alternative data sources to create custom-made investment signals.

  1. What insights have you gained from Lucena's findings?

We've gained a more granular view into pockets of alpha in our data set that we knew existed, but had not been able to highlight until now. Lucena's technology was able to isolate those pockets and quantify them in a way that makes it easy for our clients to understand.  

  1. Did you find the service beneficial? In what way?

Lucena’s analysis of Cognovi’s behavioral factors provides our clients with a valuable independent validation of Cognovi’s predictability for investment strategies.

We can now further leverage their platform and data sources to develop new and unique investment signals. 

  1. Can you share what kind of insights you provide financial institutions?

Our Emotion AI data and dashboard provide long-short hedge funds and fundamentally driven analysts the ability to conduct virtual, real-time channel checks on their coverage universes and validate their investment thesis.

Cognovi’s data can provide a unique source of alpha with regards to companies, their brands, products, and/or services, or a variety of other KPI-level data relevant to a company or industry. 

  1. How do you discern what is useful and what isn’t?

  1. We provide instructions and one-on-one training to our clients on how to interpret and use our data and charts, both in raw format as well as through our online client dashboard interface. 

  1. Do you think financial institutions know how to use alternative data effectively? Why or why not?

Changing investment processes to integrate new data sources can be challenging for many investment professionals; however, some of the leading investment teams have already fully embraced the new opportunities.

While the use of alternative data is still in its infancy, we see a significant opportunity for Cognovi’s Emotion AI to be integrated across a wide spectrum of investment processes.

After all, the majority of economic activities is driven by consumers. Therefore, understanding the consumer’s future behavior and actions is paramount to every investment process.  

  1. How can your data impact the financial markets, specifically equity trading?

It is well established in psychology that humans make decisions based on emotions. Cognovi’s Emotion AI is capable of quantifying the consumer’s decision-making process and what they will do next.

This can provide predictive insights into sales, product performance and service issues, providing investors and traders with a valuable new source of insights  

  1. What are some of the current limitations with alternative?

  2. Alternative data is an important tool to gather information about a company’s fundamentals. However, there are many other potential factors that can impact stock prices. 

  1. How does Cognovi manage heightened privacy and security issues surrounding social media?

Cognovi Labs takes great care to anonymize and aggregate the data it collects from public sources within social media so that it cannot be traced back to any one individual.

We have also invested considerable resources into the security of our third-party data sources. 

  1. How do you see predictive and emotion-based analytics evolving in the future due to advances in ML and AI?

We believe Cognovi Labs is an early innovator in the integration of machine learning and behavioral psychology.

Cognovi’s Emotion AI goes well beyond the standard sentiment analysis tools and provides predictive insights into future human behavior. No other company that we know of does what we do.  

  1. What lies ahead for Cognovi Labs?

The commercial opportunities for Cognovi Labs are almost unlimited as people’s decisions are at the core of most economic activities. Cognovi will therefore expand its product offering to help clients better forecast their Key Performance Metrics (KPIs), drive sales through emotional marketing and better manage hidden risks. 

 

Interested in learning more about the Lucena Research/Cognovi Labs partnership?

Contact us for information on derived offerings such as model portfolios and smart data feeds ready for perpetual delivery.

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