Vector Space Biosciences Stock Thematic Basket Contest Winners

We are excited to announce the winners of our recent thematic basket contest for the period 14th – 28th of April, 2023.

Short basket returned 6.75%

Long basket returned 9.19%

S&P 500 returned -0.02% over this period.

These basket results are impressive, but how were these thematic baskets selected?

The short thematic basket was influenced by the article:

U.S. Government Sells Bitcoin Seized From Silk Road Case, Netting Over $215 Million

• The U.S. sold 9,861.1707894 of the 50,000 bitcoins seized.
• The per-coin sale price was $21,877 was $2,000 less than the going rate on that particular day.
• The sale didn’t appear to impact bitcoin’s price, which gained 2.43% that day of the transaction.

The long thematic basket was influenced by the article:

Merck to buy Prometheus Biosciences for about $11 Billion

• Merck said it would buy Prometheus Biosciences for $10.8 Billion, paying $200 a share and a 75.4% premium to its last closing price.
• This allows Merck to move into immunology in a strong way with a promising experimental treatment for ulcerative colitis and Crohn’s disease.
• The Likelihood of a counter bid is slim as other large drugmakers already have a meaningful exposure to IBD or immunology.

Both Found a Trading Opportunity

Headlines around a theme of an industry or a stock impact the industry or stock’s peers.

In other words, based on the relative valuation method, a theme or company impacted by an event can cause a ripple effect that changes the perceived value of all companies that have an association to that theme. A paper titled “Contagious Speculation and a Cure for Cancer: A Non-Event that Made Stock Prices Soar,” (with Tomer Regev, Journal of Finance, February 2001, Vol. 56, №1, pp. 387 – 396) studies and explains the reactions of stocks based on information published on their peers.

Over the next few days (this time gap is closing with new AI and Algo trading introduced in markets) the stock prices of peer companies in a similar field will react significantly. Using Natural Language Processing (NLP) and Natural Language Understanding (NLU), we identify similar companies in these fields ahead of everyone else, allowing us to take advantage of informational arbitrage.

The Trades

Short Basket – Bitcoin.

Bitcoin is a form of digital currency that aims to eliminate the need for central authorities such as banks or governments. Instead, Bitcoin uses blockchain technology to support peer-to-peer transactions between users on a decentralized network. The U.S. Government selling over $200 Million worth of bitcoin may result in a negative reaction for companies who hold or utilize bitcoin so a short basket was created.

Long Basket – RXDX (Prometheus Biosciences)

Prometheus Biosciences Inc is a biotechnology company pioneering a precision medicine approach to the discovery, development, and commercialization of novel therapeutic and companion diagnostic products for the treatment and diagnosis of IBD. Merck acquiring RXDX at a 75% premium increases the valuation for all companies working in the same field so a long basket was created for this event.

Market Reaction

The short basket “Bitcoin” remained open for 2 weeks and returned 6.75% profit.

The Long basket “RXDX” remained open for 2 weeks and returned 9.19% profit.

Information Arbitrage

As mentioned previously, as events occur the stock prices of peer companies associated with the theme will be impacted over the following trading period. After a break in the news, Financial Analysts will spend days or even weeks studying a company’s description and news publications to pinpoint which of the company’s peers will be affected. Companies’ prices will soon start to react, and profits erode over this time.

Capturing information arbitrage is done using Natural Language Processing and Understanding (NLP/NLU), both are branches of artificial intelligence. Vectorspace AI’s Real-Time Thematic Basket Generator uses this technology to identify these hidden relationships in real-time. Querying for Bitcoin or RXDX produces a basket of the correlated stocks.

Sign up to our finance products here to start creating your own thematic baskets whether it be long/short stocks or cryptos. You can also join our discord server to view past results and stay up to date with any additional thematic basket contests in the future!

About Vectorspace AI

Vectorspace AI develops scientific data engineering pipelines that leverage language models trained to detect hidden relationships between cryptos, stocks, themes, company specific events, and global events to uncover opportunities and enhance investor risk and return metrics. To view all products please visit the Vector Space Biosciences website and register for a complimentary trial of the Real-Time Thematic Basket Generator for stocks to get started. Vector Space Biosciences, Inc. (including its subsidiaries) is not a registered investment advisor and nothing contained in any materials or communications should be construed as a recommendation to buy or sell any securities or trading vehicles of any kind including cryptocurrencies.