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Can Data Science Predict the Stock Market?


A person who wants to earn a degree in data science may want to know, “Can data science predict the stock market?” For as long as it has existed, people have been looking for a way to predict the activity of the stock market so they know when to sell for a profit and when to buy at a discount. Knowing whether or not data science can predict the stock market could help a person decide what type of data science job to consider.

What Data Science Can Do

Data science uses algorithms to predict the future. People already experience the effects of data science in their everyday lives. For example, Spotify and Netflix make recommendations for media based on what a person has already seen and indicated that they liked. Data science can also use algorithms in order to identify unusual patterns of behavior based on past behaviors. For example, data science is used in the detection of credit card fraud. Facial recognition features allow Facebook to tag people on images and make it possible for a phone to recognize its owner.

Predicting the Stock Market

Liking a song is one thing. Picking the right stock on the right day is another. So far, data science cannot be used to predict the stock market, explains Bloomberg. Choosing a good investment is much harder for a machine to do than it is for a machine to pick a product a person might like on Amazon. For decades, computer algorithms have been built and tweaked in order to try to predict the stock market and make the right investment at the right time. Overall, those algorithms do not fare much better than the average. That is to say, a person could get the same results by flipping a coin.

Why Data Science Cannot Yet Predict the Stock Market

There are several reasons why machine learning is not yet making better-than-average predictions about the stock market. One reason is that the data related to good investments is always changing. Algorithms do better with stationary data. Another reason is that there is more noise than signal in the data that is collected. Stocks move up and down a little for no discernible reason, and machines cannot figure out what the noise is versus what the signal is when a stock moves in either direction. The available data is also rather small. Most people have uploaded hundreds of images of themselves on their phone or social media. There are only 119 years of stock market data, and not all companies have been on the market the entire time.

The Difference Is Small

A good time to sell may only be a small difference in a price. Machines might not pick up on such a small difference. The machines need clearer results and patterns for their algorithms.

Data science is advancing at a rapid pace, and it is propelling machine learning and artificial intelligence. It is also true that a lot of stock market activity takes place on machines, with algorithms in place to trigger buying and selling. Knowing the answer to, “Can data science predict the stock market?” helps a degree candidate know more about the possibilities of data science, what it can do now and where it might go in the future.

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