In a previous post (Arratia, 2020) we outlined the design of some automatic trading strategies for single assets, making use of the financial news-based sentiment indicators produced by Acuity Trading. In this article we propose to use the sentiment indicators for portfolio selection. The idea is to use different compositions of sentiment indicators to rank stocks and use them alternatively with the popular heuristic of quintile portfolio weighting. Subsequently, a backtesting approach is implemented to compare these sentiment-based quintile portfolio selection with other popular portfolio selection and rebalancing strategies, and across several performance measures.
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