Investigating the Performance of Random Forest Classification for Stock Trading

Sammanfattning: We show that with the implementation presented in this paper, the Random Forest Classification model was able to predict whether or not a stock was going to increase in value during the coming day with an accuracy higher than 50\% for all stocks included in this study. Furthermore, we show that the active trading strategy presented in this paper generated higher returns and higher risk-adjusted returns than the passive investment in the stocks underlying the strategy. Therefore, we conclude \textit{(i)} that a Random Forest Classification model can be used to provide valuable insight on publicly traded stocks, and \textit{(ii)} that it is probably possible to create a profitable trading strategy based on a Random Forest Classifier, but that this requires a more sophisticated implementation than the one presented in this paper.