3 Must-Know GPT-4o Use Cases for Finance

Summary

This video script explores three innovative use cases of Chat GPT 40 in the realm of finance. It begins with portfolio optimization, demonstrating how to use Chat GPT to create an efficient frontier for stock allocation to maximize returns based on risk. Next, it delves into sentiment analysis of financial reports, highlighting the importance of understanding the overall sentiment before critically reading reports to avoid biased interpretations. Finally, it discusses optimizing an existing portfolio by adding a new asset to improve the risk-return ratio. The script emphasizes the necessity of understanding financial concepts and data analysis to responsibly utilize AI for making informed financial decisions.

Takeaways

• 🤖 Chat GPT 40 is being discussed for its potential to revolutionize financial markets and analysis through AI.
• 💡 Learning to use AI tools like Chat GPT 40 responsibly is emphasized as valuable and necessary for future financial endeavors.
• 📈 The first use case presented is portfolio optimization, where Chat GPT 40 assists in finding the best allocation of stocks for maximum returns based on risk.
• 📊 An R script is provided to demonstrate how to use Chat GPT 40 for creating an efficient frontier and visualizing stock allocations for a given return.
• 🧐 The script includes steps like downloading stock prices, calculating daily returns, and simulating portfolios to find the optimal stock allocation.
• 📚 The second use case is sentiment analysis on financial reports, which can provide context and help identify biases or inconsistencies before critically reading the reports.
• 🔍 The sentiment analysis script is shown to extract overall sentiment, point out potential biases, and highlight any warning or beware sections in financial reports.
• 📉 The final use case discussed is optimizing an existing portfolio by adding a new asset to improve the risk-return ratio, using Chat GPT 40 to calculate the best stock allocation.
• 📝 The provided R script for portfolio optimization includes calculating average returns, standard deviations, and the Sortino ratio for an initial portfolio and a new asset.
• 📊 The script also demonstrates how to visualize the initial and optimal portfolios on a graph to compare their performance and risk levels.
• 💡 A reminder is given that understanding the underlying financial concepts and data analysis processes is crucial before implementing AI-generated solutions.

Q & A

What are the three use cases for Chat GPT 40 in finance discussed in the video?

The three use cases for Chat GPT 40 in finance discussed in the video are: 1) Portfolio optimization, 2) Sentiment analysis in financial reports, and 3) Evaluating the risk-return ratio of a current portfolio with the addition of a new asset.

What is the purpose of using Chat GPT for portfolio optimization?

The purpose of using Chat GPT for portfolio optimization is to help find an allocation of preferred stocks and investments to achieve the highest return for every point of risk, using the modern portfolio theory.

What is the efficient frontier in the context of portfolio optimization?

The efficient frontier, in the context of portfolio optimization, refers to the set of optimal portfolios that offer the highest expected return for a defined level of risk, or the lowest risk for a given level of expected return.

Why is it important to learn to use tools like Chat GPT responsibly in finance?

It is important to learn to use tools like Chat GPT responsibly in finance because they can provide valuable insights and analysis, but they also require a good understanding of the underlying financial concepts and data analysis processes to ensure the accuracy and relevance of the information provided.

What is the role of Chat GPT in sentiment analysis of financial reports?

The role of Chat GPT in sentiment analysis of financial reports is to provide an overall sentiment of the business and its future projections, highlight potential biases to avoid, and point out any inconsistencies or illogical data within the report.

What is the SEC and why do they require businesses to publish financial quarterly reports?

The SEC (U.S. Securities and Exchange Commission) is a federal agency responsible for enforcing securities laws and regulating the securities industry. They require businesses listed in stock markets to publish their financial quarterly reports to ensure transparency and accountability to investors.

How does Chat GPT assist in evaluating the risk-return ratio of a current portfolio with the addition of a new asset?

Chat GPT assists in evaluating the risk-return ratio of a current portfolio with the addition of a new asset by providing an R script that collects stock price data, calculates the average return and standard deviation of each stock, and optimizes the portfolio to find the best allocation that increases the Sortino ratio.

What is the Sortino ratio and why is it important in portfolio management?

The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the standard deviation of negative portfolio returns, called downside deviation. It is important in portfolio management as it measures the risk-adjusted return of an investment portfolio, focusing on the downside risk.

What are some biases that one should be aware of when reading financial reports?

Some biases to be aware of when reading financial reports include recency bias, confirmation bias, and anchoring bias. These biases can affect the interpretation of the report and lead to skewed decision-making.

How can Chat GPT help in improving financial decision-making?

Chat GPT can help in improving financial decision-making by providing data-driven insights through portfolio optimization, sentiment analysis of financial reports, and evaluating the risk-return ratio with the addition of new assets. It aids in making more informed and critical assessments of financial data.

Outlines

00:00

🤖 Chat GPT 4.0 Use Cases in Finance

This paragraph introduces three innovative use cases of Chat GPT 4.0 in the financial sector that are set to revolutionize the way financial markets are perceived. It emphasizes the importance of learning to use AI tools responsibly and provides guidance on installing a necessary studio for these tasks. The first use case discussed is portfolio optimization, which involves using Chat GPT to assist in finding the best allocation of stocks and investments for maximum returns. The paragraph outlines a process involving R scripts to pull stock prices, create an efficient frontier according to modern portfolio theory, and develop a function for inputting desired returns to receive optimal stock allocations. The example provided includes a prompt for Chat GPT to generate a script for stock price data analysis of Apple, Nvidia, and Coca-Cola for a specified period, and to visualize the efficient frontier and portfolio allocation.

05:01

📊 Sentiment Analysis of Financial Reports

The second paragraph delves into the application of Chat GPT for sentiment analysis on financial reports, such as the SEC-mandated quarterly reports published by listed businesses. The goal is to provide a preliminary sentiment overview before reading the report, enabling a more critical and informed reading experience. The paragraph describes a script for uploading a financial report and instructing Chat GPT to analyze its sentiment, identify potential biases to watch out for, and flag any inconsistencies or illogical data. The example given uses the 10-Q form of Birkar Hatway for Q1 2024, highlighting the positive overall sentiment, discussing biases like recency, confirmation, and anchoring, and pointing out specific warnings related to investment gains and losses, foreign currency effects, and insurance contracts.

10:01

📈 Optimizing Portfolio with New Asset Addition

The final paragraph presents the third use case, which focuses on optimizing an existing portfolio by potentially adding a new asset to improve the risk-return ratio. It details a process where Chat GPT is prompted to provide an R script for collecting stock press data, calculating average returns and standard deviations, and determining the initial portfolio metrics. The script then optimizes the portfolio with the addition of a new stock, Amazon in this case, to find the best allocation that maximizes the Sortino ratio. The response includes a step-by-step guide on running the code in the studio, which involves loading libraries, specifying data ranges, merging stock data, and performing portfolio optimization. The results show a comparison between the initial and optimized portfolios, highlighting the improved return and Sortino ratio with the new allocation weights.

🚀 Conclusion on Chat GPT 4.0's Financial Applications

In conclusion, the paragraph summarizes the three presented use cases of Chat GPT 4.0 for finance, emphasizing their potential to enhance financial analysis and decision-making. It stresses the importance of understanding the underlying financial concepts and data analysis processes when using AI tools like Chat GPT. The paragraph cautions against blindly copying and pasting prompts, as AI can provide incorrect information, and encourages users to double-check the accuracy of AI-generated outputs. It invites viewers to request new video topics and reminds them of the importance of having a foundational knowledge in finance and economics to responsibly use AI in this field.

Keywords

💡Chat GPT 40

Chat GPT 40 refers to a hypothetical advanced version of a language model AI, similar to Chat GPT, which is capable of understanding and generating human-like text. In the context of the video, it is portrayed as a tool that can revolutionize the way financial markets are analyzed and understood. The script mentions using 'Chat GPT 40' for various financial analysis tasks, indicating its potential to automate and enhance decision-making processes in finance.

💡Portfolio Optimization

Portfolio optimization is a financial strategy that aims to maximize returns for a given level of risk or minimize risk for a desired level of return. The video script discusses using Chat GPT 40 to assist in finding an optimal allocation of stocks and investments within a portfolio. It mentions the Modern Portfolio Theory and the creation of an 'efficient frontier,' which represents the set of optimal portfolios that offer the highest expected return for a defined level of risk.

💡Modern Portfolio Theory (MPT)

Modern Portfolio Theory is an investment theory that focuses on the idea that the risk of a portfolio of assets can be reduced by combining assets with less-than-perfect correlation. In the script, MPT is used to create an efficient frontier for a portfolio consisting of Apple, Nvidia, and Bshar Hadway stocks, demonstrating how AI can be applied to financial theories to suggest investment strategies.

💡Efficient Frontier

The efficient frontier is a concept in finance that represents the set of optimal portfolios that offer the highest expected return for a defined level of risk. In the video script, Chat GPT 40 is used to generate an R script that creates an efficient frontier visualization, showing the best possible combinations of stocks that maximize returns for each level of risk.

💡Sentiment Analysis

Sentiment analysis is the process of determining the emotional tone behind words to understand the attitudes, opinions, and emotions expressed in a piece of text. The video script describes using Chat GPT 40 to perform sentiment analysis on financial reports, such as the 10Q form of Birsh Hadway, to provide context and help investors read the reports more critically by identifying the overall sentiment and potential biases.

💡SEC (Securities and Exchange Commission)

The Securities and Exchange Commission is a U.S. government agency responsible for enforcing federal securities laws, regulating the securities industry, and protecting investors. In the script, it is mentioned that the SEC requires businesses listed on stock markets to publish their financial quarterly reports, which can then be analyzed using sentiment analysis for investment decision-making.

💡Risk-Return Ratio

The risk-return ratio is a measure used in finance to determine the balance between the level of risk associated with an investment and the potential return on that investment. The video script discusses how Chat GPT 40 can help in creating a function to find the best stock allocation to improve the risk-return ratio of a portfolio, especially when considering the addition of a new asset like Amazon.

💡Sortino Ratio

The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the standard deviation of negative portfolio returns, called downside deviation. The script mentions calculating the Sortino ratio for a portfolio as a measure of risk-adjusted return, indicating the portfolio's performance relative to its downside risk.

💡R Script

An R script is a sequence of commands written in the R programming language, which is widely used for statistical computing and graphics. The video script provides examples of R scripts that Chat GPT 40 generates to perform various financial analyses, such as pulling stock prices, creating efficient frontiers, and optimizing portfolios.

💡Stock Allocation

Stock allocation refers to the process of distributing investments across different stocks within a portfolio. The video script discusses how Chat GPT 40 can suggest the best stock allocations for a given portfolio to achieve a specific return or to improve the risk-return ratio, taking into account the individual stocks and their respective weights.

💡Financial Analysis

Financial analysis is the process of evaluating a company's or individual's financial statements to determine their financial health and performance. The video script emphasizes the use of AI tools like Chat GPT 40 to assist in financial analysis, enabling more informed and data-driven decisions in the financial markets.

Highlights

Chat GPT 40 can revolutionize the way financial markets are viewed and analyzed.

Learning to use AI tools like Chat GPT 40 responsibly is crucial for future financial success.

Chat GPT 40 can assist in portfolio optimization for retirement or medium-term profits.

Modern Portfolio Theory is used to find the best stock allocation for given risk.

Chat GPT 40 can generate an R script for stock price analysis and efficient frontier visualization.

Portfolio optimization can help decide stock allocations for a desired return level.

Sentiment analysis can be performed on financial reports to gauge business sentiment before reading.

AI can help identify biases and inconsistencies in financial reports.

Chat GPT 40 can provide a detailed sentiment analysis of a company's financial report.

AI can help determine the optimal stock allocation when adding a new asset to a portfolio.

The Sortino ratio can be calculated to find the best risk-adjusted return.

Chat GPT 40 can suggest whether to add a new stock to improve a portfolio's risk-return ratio.

Optimization scripts can calculate new portfolio metrics and suggest optimal weights.

AI should be used in conjunction with a deep understanding of financial concepts and data analysis.

It's important not to blindly trust AI and to verify its outputs for accuracy.

The video encourages viewers to learn about finance and economics to responsibly use AI.

Three innovative use cases of Chat GPT 40 in finance are presented to improve data-driven decision-making.

Transcripts

these three MN chat GPT 40 use cases for

finance will blow your mind and it will

change the way you look at financial

markets financial analysis Ai and more

people can't stop talking about chat GPT

chat GPT 40 chat GPT 40 chat

gp4 and AI stocks are having the time of

their

lives learning to use these tools

responsibly will not only be valuable

but necessary for your future we're

going to use chpt 40 and our studio for

the use we're going to talk about today

there are links down below that will

guide you to install our studio in case

you don't have it in your computer yet

let's start with the first use case

portfolio optimization assuming you have

a specific portfolio you would like to

have for retirement or medium-term

profits you can use chat gbt in order to

help you find an allocation of your

preferred stocks and Investments so you

can get the highest return for every

point of risk beware the mor portfolio

theory is praised by a lot of academics

while famous investors like Warren buff

say they are total nonsense I'm not here

to make a judgment of who's right and

who's wrong but we're going to use this

model and you get to decide if you think

it is worth it or not with that said

we're going to give chbt the following

prompt I would like you to provide me

with an R script that will pull the

stock prices of Apple Nvidia and bshar

hadway stock for the period between

January 1st 2023 and January 1st 2024 I

would like you to create an efficient

Frontier according to the modern port

portfolio Theory with all combinations

of these three stocks and create a

visualization for this step efficient

Frontier is a fancy word for the best

stock allocation in terms of return for

every given risk available after that I

want you to create a function that will

require me to put the average return I

am looking for and the output should be

the stock allocations that I should put

in order to get the efficient portfolio

with that specific return also create a

visualization with the same efficient

Frontier but showcasing in red the point

where my given port folio exists in the

graph and you can see this is the

response that we get with the code that

we have to put in our studio that is

written right here in use case number

one first we're going to install the

packages that we have here I already

have them installed so I'm just going to

load them then we have the symbols and

the start and end date we're going to

download the stock prices and we are

going to adjust the stock prices here

calculate the daily Returns the mean and

Co variance Matrix and we are going to

simulate 5,000 portfolios for our

efficient Frontier then we have the set

the risk free rate our risk-free rate

right now is about 5% so we are going to

put 5% as the risk-free rate and loaded

we are going to create a loop that will

create random portfolios with this

information we'll create a data set for

plotting and then we are going to have

our effent Frontier here you can see all

the portfolios you can create with these

stocks where you have the maximum return

for every given risk that you can

provide now we are going to create a

function to calculate the optimal

weights we're going to create a function

in order to make a plot of it and now

the target return let's say I want a 10%

return so here we have a 10% or you can

replace it with your desired return so

it will give me the allocations of every

stock that I am requiring make a plot in

order to understand where it is as you

can see we have our efficient Frontier

as before but if you want a 10% % return

then you have this risk and this return

on the graph as you can see it is pretty

close to the combination where you have

the less amount of risk so as you can

see here these are the weights for our

socks we changed the bir Shar Highway

stock because it wasn't working with the

data so we put Co which is the Coca-Cola

company so we should invest 25% in apple

19% in Nvidia and 72% in Coca-Cola in

order to get this return for this amount

of risk RK the Second Use case is

sentiment analysis in financial reports

the US Financial supervisor also known

as the SEC requires businesses listed in

stock markets to publish their financial

quarterly reports you can leverage Chad

GPT in order to run a sentiment analysis

on this report therefore before you read

it you know the overall sentiment of the

business and its future and why do this

because you can read it more critically

when you know the sentiment that was

written into the report because some

reports might hype you up but in reality

they show a different picture with the

data this use case is not trying to save

time on actually reading a report but

only providing more context before you

read it and also signaling you with any

biases or inconsistent data that you

might find in order to read it more

critically the first thing you should do

is download the report you want to run

the sentiment analysis on in this case

we're going to use the 10q form of bir

sh hadway for the first quarter of 2024

so we're going to write the following

script we're going to upload the birsh

hadway PDF document and you can write

here you can find the 10q form of birkar

hatway for the first quarter of 2024 I'm

about to start reading it but I want you

to run a sentiment analysis on this

report so I may avoid any biased

analysis after running the sentiment

analysis I want you to point me the

overall sentiment of the present

business and future projections then Le

me three possible biases that I should

avoid when reading it and lastly give me

a message on any warning or beware

section on the report that may have

inconsistent or illogical data and we

have this following answer the overall

sentiment is positive here we can see

the figures of the net earnings of the

report compared to last year we can also

see the balance sheet and the cash

equivalents that they have and how the

insurance segment is doing we can also

see the future projections on long-term

growth and the discussion of the stable

Outlook of rail roll utilities and the

energy segment here we have the possible

biases to avoid recency bias and here

you can see that given a significant

drop in net earnings compared to the

same cor last year it is essential to

consider the broader context do not fall

into recency bias confirmation bias be

aware of any preconceived notions about

ver Hardway performance so you can

critically assess the report without

confirming your existing beliefs and

lastly anchoring bias avoid placing too

much weight on high earnings reporting

in previous quars market conditions and

investment performance change because of

external factors and lastly we have the

warnings or inconsistent data you have a

warning on the investment gains and

losses the foreign currency effects and

the insurance and reinsurance contracts

so you got a pretty detailed sentiment

analysis on the report so now you can

read it knowing that the sentiment is

positive but you should be careful of

any information that looks pretty good

or bad compared to previous data with

this biases in mind the last use case

which is my favorite is giving your

current portfolio let's say you want to

add a new asset to the portfolio what

stock allocation should you have in

order to increase the risk return ratio

of your portfolio so we go to chat GPT 4

and we have the following prompt I want

you to provide me with an R script that

does the following it collects Stock

press data of Apple Nvidia Amazon and

bshar Hardway from January 1st 2023 to

to January 1st 2024 no use of external

apis it calculates the average return of

each stock as well as the standard

deviation my portfolio has a composition

as follows 50% Apple 15% Nvidia and 35%

beire hadway with that said calculate

the average return of the portfolio the

standard deviation of the portfolio and

the sortino ratio now let's say I want

to add a new asset in this case Amazon

with the information we have so far and

no I'm looking for the best stino ratio

possible create a function that provides

me with the best stock allocation with

the addition of Amazon stock if it's

needed if you find a better portfolio

without it then do not add it and we

have the following response with the

code we have to run on our studio so

first we're going to load the required

libraries in this case I have them

already installed you should install

them in case you don't do not have it we

have the stocks and the weights of our

initial portfolio you can change these

values according to to any specific

example you have then we have to specify

the data range in this case January 1st

2023 to January 1st 2024 we need to get

the stock data after that we need to put

the stock data into a data set merge it

and calculate the daily returns

calculate the average return and

standard deviation for each stock and

also Define the portfolio weights

calculate the Cino ratio for the

portfolio and we have everything now

initial portfolio metrics these are the

initial values you gave and now you have

to load a new library the optim in order

to optimize the portfolio with the

addition of Amazon or any stock you

would like to try and we have this

function right here we have to load

after doing that we have to perform the

portfolio optimization and as you can

see there's a lot of coding going in the

background calculate new portfolio

metrics and we're going to print the

results right here as well as creating a

data set to plot it after running all

this final data we have the following

this Green Dot right here is the initial

portfolio we can see the return was

pretty low compared to the new one with

a low Soro ratio and you can see all the

values right here that says the optimal

weights the average return and standard

deviation as you can see with the line

we have a huge increase in the return as

well as the Soro ratio in the optimal

portfolio what are the optimal weights

we have 11% in the first stock 30% in

the second stock 14% in the third stock

and

43% in Amazon stock as you can see we

have a new portfolio that you can try

with the specific values that you have

now you know three cool use cases of

ch40 for finance these use cases can

improve the way you analyze at things

and make better data driven decisions do

not forget before running and copy

pasting all these prompts you have to

understand the underlying Financial

Concepts as well as the data analysis

process that you are implementing do not

copy paste blindly because AI is used to

do hallucinations fancy word for wrong

answers do not think that AI will not

give you a false answer so you have to

double check the information is right

and consistent with what you expect and

if it turns out to be right you have a

pretty good analysis if you want a new

video on any specific topic like certin

ratio financial statements comment down

below so we can create a video for you

one of the toughest and weakest points

of AI is having to know the information

the underlying Concepts beforehand in

order to check its veracity in order to

use AI responsibly we have to know about

finance and economics beforehand if you

want to become an expert in finance and

economics click here to find more that's

it for today I hope you enjoy this video

see you all in the next one chiao Chow