S-Score

What Is S-Score?

An S-Score is a numerical value that shows how consumers and investors feel about a company, stock, exchange-traded fund (ETF), sector, or index as expressed over social media. S-Scores are created with data gathered by social media monitoring engines to help investors make trades and to help companies with market analysis and decision making.

Understanding S-Score

In 2013, NYSE Technologies and Social Market Analytics (SMA) created the first S-Score to be distributed over a high-performance global network. It was specifically geared toward the financial sector and designed to benefit trading firms, portfolio managers, hedge funds, risk managers, and brokers.

Along with its trademarked S-Score, SMA offers an entire family of metrics (together called S-Factors) designed to capture financial market sentiment about a particular company based on the volume, change, and dispersion of social media comments. These metrics include the S-Mean, S-Delta, S-Volatility, S-Buzz, and S-Dispersion indicators. Their system filters out irrelevant and duplicate comments and spam to focus on the 10% of comments that provide meaningful information.

S-Score Measurement

SMA's processing engine is comprised of three components: extractor, evaluator, and calculator. According to SMA, the extractor accesses the API web services of Twitter and microblogging data aggregator GNIP. These sources are polled to glean commentary (in tweets) on SMA-covered stocks. This process is performed continuously.

In the evaluator stage, each tweet is analyzed for financial market relevance using proprietary algorithms. The characteristics of the person making the tweet are also analyzed to determine intent. Finally, the calculator stage determines the "sentiment signatures" for each SMA-covered stock using a bucketing and weighting process based on timing. Then a "normalizing and scoring process" calculates an S-Score. 

An S-Score of greater than +2 is associated with significant positive sentiment, while an S-Score of lower than -2 is associated with significant negative sentiment. A score greater than +3 is considered extremely positive, while one below -3 is considered extremely negative. Anything between -1 and +1 is considered neutral. Higher scores could be also associated with higher Sharpe ratios, while lower scores could be associated with lower Sharpe ratios.

While market events, such as earnings reports, mergers, and acquisition announcements can present good case studies, they tend to overshadow social media sentiment. For investors who are interested in using S-Factors in their stock analysis, it may be interesting to assess S-Factor relevance prior to, and/or, after such market events. 

S-Score Usage

Investors can use S-Scores to help them pick stocks. When an S-Score changes, the stock price is expected to change as well. Research by Social Market Analytics (SMA) has shown that stocks with S-Scores higher than +2 significantly outperformed the S&P 500 over the period Dec. 2011 through Dec. 2015, while those with S scores less than -2 underperformed it significantly.

SMA also provides coverage of cryptocurrency in addition to all the equities within the major indices. The S-Score has tapped an underused data source in social media buzz to provide another analysis tool that can help investors when they are evaluating stocks.