Investing with Intelligence: Using Neural Networks to Determine Asset Allocation Strategies

Artificial intelligence technology involves the use of neural networks — sophisticated computer systems designed to exhibit learning behavior similar to that occurring in the human brain. Neural networks are adaptive systems that can react and adjust to changing conditions. As a result, this technology has the potential to be particularly useful in the field of investment planning because neural networks excel at making predictions where the outcome is affected by an infinite number of factors working independently or in conjunction with one another.

Operating in conjunction with a world-renowned authority in the field of artificial intelligence, Legend uses a neural network known as AANN (Asset Allocation Neural Network). AANN is the result of a considerable investment of time, talent and technology.

AANN is capable of storing and analyzing vast amounts of market and economic data including various stock market indices, technical information such as advance/decline indicators, international interest rates and an immense amount of other relevant information. This data is then used to train the network to provide predictions of the relative strength of the asset classes representing the major domestic and foreign debt and equity sectors.

AANN was designed to accurately estimate the relative strength of individual asset classes. The process by which AANN makes these determinations is complex and constantly evolving. Factors used in the decision-making process are analyzed and then changed as new tests are conducted. AANN also evaluates its own work, giving greater emphasis to those market variables that it believes to be important while downplaying those factors that emerge as less significant. Over time, AANN deftly isolates the key factors and relationships necessary to make asset allocation decisions that fall within established risk-adjusted performance tolerances.

AANN has proven to be of tremendous value in the asset allocation process as it constantly tests and then hones its decision-making skills. We believe the use of AANN offers our clients an added degree of investment expertise that would be impossible to duplicate using conventional analytical tools.