Data Science In FinTech

Landing a data science role hinges on mastering the fundamentals - coding,

statistics, and machine learning. These pillars represent about 80% of what it
takes to secure a role in data science. For any aspiring data scientist, honing
these skills should be the primary focus.
However, once these fundamentals are solid, candidates can shorten their job
search by adding another crucial element: business domain-specific projects.
Tailoring your portfolio to showcase expertise in industry-relevant problems not
only highlights your practical application skills but also sets you apart in a
competitive job market.
This guide will deep dive into Data Science projects in the Finance Industry.
Finance has multiple sub-fields and we will dive into 6 of the main sub-fields that
hire Data Scientists (DS) or Data Analysts (DA). For each sub-field we will briefly
cover the business model and metrics you should be aware of (especially when
communicating during your interviews), in addition to providing project ideas you
can build out.

High Frequency Trading

Utilizes ML to make real-time trading decisions, executing orders at high speeds
based on market data.
Business Model
Companies in this space generate revenue through the spread (difference
between buy and sell prices), arbitrage opportunities, and market-making
activities. The emphasis is on high volume and low latency trades.
Companies

Jane Street: A quantitative trading firm that heavily relies on ML for HFT.

Citadel Securities: Known for using advanced algorithms in market-making

and trading.

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 Two Sigma: A firm that uses machine learning to predict market movements
and execute trades.

Key Metrics

Sharpe Ratio: Measures the performance of an investment relative to its risk.

Execution Speed: The time it takes to execute a trade, crucial in HFT.

Order Fill Rate: The percentage of trade orders that are successfully
executed.

Some of the projects you can consider to stand out are -

Predictive Market Making

Objective: Develop a model to predict bid and ask prices in real-time, allowing
for more efficient market-making.

Dataset: Kaggle High-Frequency Trading Dataset

ML Techniques: Time Series Analysis, Reinforcement Learning

Metrics: Sharpe Ratio, Execution Speed

Volatility Prediction for Trading Strategies

Objective: Create a model to predict short-term market volatility, helping to
optimize trading strategies.

Dataset: Historical Intraday Stock Market Data

ML Techniques: GARCH Models, LSTM Networks

Metrics: Prediction Accuracy, Volatility Forecast Error

Arbitrage Opportunity Identification

Objective: Identify arbitrage opportunities across multiple exchanges or
assets using real-time data.

Dataset: Crypto Arbitrage Dataset

ML Techniques: Regression Models, Anomaly Detection

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 Metrics: Profit per Trade, Execution Latency

Credit Scoring and Risk Management

ML models are used to assess creditworthiness, predict defaults, and manage risk
portfolios.

Business Model

Revenue is generated through lending (interest on loans), credit products, and risk
assessment services.
Companies

FICO: Provides credit scoring and analytics for risk management.

Zest AI: Uses machine learning to offer AI-powered credit underwriting.

Kabbage: A fintech company that uses AI to offer small business loans with
rapid credit decisions.

Key Metrics

Default Rate: The percentage of loans that default.

Credit Score Accuracy: How accurately the model predicts creditworthiness.

Loss Given Default (LGD): The amount of loss a lender incurs when a
borrower defaults.

Some of the projects you can consider to stand out are -

Credit Risk Prediction

Objective: Build a credit scoring model to predict the probability of default for
loan applicants.

Dataset: LendingClub Loan Data

ML Techniques: Logistic Regression, Boosted Trees, SHAP/PDP/ICE for

explanation

Metrics: AUC-ROC, Accuracy, F1 Score

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 Dynamic Credit Limit Adjustment
Objective: Develop a model to dynamically adjust credit limits based on user
behavior, or predict risk profile, or predict default risk of customers.

Dataset: Credit Card Data

ML Techniques: Logistic Regression, Boosted Trees, SHAP/PDP/ICE for

explanation

Metrics: Default Rate, Customer Retention Rate

Loan Portfolio Risk Optimization

Objective: Optimize the risk-return profile of a loan portfolio using machine
learning.

Dataset: Home Credit Default Risk Dataset

ML Techniques: Portfolio Optimization, Monte Carlo Simulations

Metrics: Sharpe Ratio, Expected Shortfall

Fraud Detection and Prevention

ML models are deployed to detect and prevent fraudulent activities, especially in
transactions.
Business Model

Companies in this space earn through transaction fees, subscriptions for fraud
detection services, and penalties recovered from fraud attempts.
Companies

Stripe: Uses machine learning to detect and prevent payment fraud.

Feedzai: Provides fraud prevention solutions powered by AI.

PayPal: Employs advanced ML models to secure transactions and prevent

fraud.

Key Metrics

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 False Positive Rate: The percentage of legitimate transactions incorrectly
flagged as fraudulent.

Fraud Detection Rate: The percentage of fraudulent activities accurately

identified.

Chargeback Rate: The proportion of transactions that are disputed by

customers due to fraud.

Some of the projects you can consider to stand out are -

Real-Time Transaction Fraud Detection

Objective: Build a real-time fraud detection model to flag suspicious
transactions as they occur.

Dataset: Credit Card Fraud Detection Dataset

ML Techniques: Anomaly Detection, Autoencoders, Isolation Forest

Metrics: Precision, Recall, False Positive Rate

User Behavior Profiling for Fraud Prevention

Objective: Develop user behavior profiles to detect unusual activities that
might indicate fraud.

Dataset: Synthetic Financial Datasets For Fraud Detection

ML Techniques: Logistic Regression, Decision Trees, Gradient Boosting

Metrics: AUC-ROC, F1 Score

Portfolio Management and Robo-Advisors

ML is used to optimize investment portfolios and automate financial advice.

Business Model

Revenue is typically generated through management fees, advisory fees, and

performance-based fees.

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 Companies

Wealthfront: A robo-advisor that uses ML to manage portfolios.

Betterment: Utilizes AI to provide automated, personalized investment advice.

BlackRock: Uses ML for portfolio management and financial market analysis.

Key Metrics

Portfolio Return: The overall return on investment for the managed portfolio.

Risk-Adjusted Return: Measures portfolio performance relative to the risk

taken.

Customer Retention Rate: The percentage of clients that continue to use the
service over time.

Some of the projects you can consider to stand out are -

Personalized Portfolio Recommendation

Objective: Build a recommendation system that suggests personalized
investment portfolios based on user preferences and risk tolerance.

Dataset: Portfolio Management Dataset (See this notebook for an example)

ML Techniques: Collaborative Filtering, Matrix Factorization

Metrics: User Satisfaction Score, Portfolio Performance

Portfolio Risk Prediction Using ML

Objective: Develop a model to predict the risk associated with different
portfolio compositions.

Dataset: Create your own portfolio combination using Historical Stock Prices

ML Techniques: Time Series Forecasting, Monte Carlo Simulations

Metrics: Value at Risk (VaR), Expected Shortfall

Automated Rebalancing of Portfolios

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 Objective: Implement an automated system to rebalance investment portfolios
based on market conditions.

Dataset: Create your own portfolio combination using Historical Stock Prices

ML Techniques: Reinforcement Learning, Optimization Algorithms

Metrics: Portfolio Return, Transaction Costs

Financial Forecasting and Analytics

Involves using ML to forecast financial metrics like stock prices, economic
indicators, and company performance.
Business Model

Companies provide forecasting tools, financial analytics software, and

consultancy services.
Companies

Bloomberg: Uses AI for financial news and market data analytics.

Refinitiv: Offers financial data and analytics tools powered by AI.

Kensho Technologies: Provides predictive analytics for financial markets.

Key Metrics

Prediction Accuracy: How closely the forecasts match actual outcomes.

Mean Absolute Error (MAE): A common metric for evaluating forecast

accuracy.

Economic Value Added (EVA): A measure of a company’s financial

performance based on residual wealth.

Some of the projects you can consider to stand out are -

Stock Price Prediction

Objective: Build a model to predict stock prices using historical data and
market indicators.

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 Dataset: S&P 500 Stock Data

ML Techniques: LSTM Networks, ARIMA, Gradient Boosting

Metrics: Mean Absolute Error (MAE), R-Squared

Economic Indicator Forecasting

Objective: Predict key economic indicators such as GDP growth or
unemployment rates using machine learning.

Dataset: World Bank Economic Indicators

ML Techniques: Time Series Forecasting, Bayesian Models

Metrics: Forecast Accuracy, Root Mean Square Error (RMSE)

Earnings Call Sentiment Analysis

Objective: Analyze the sentiment of earnings calls to predict stock price
movements.

Dataset: Earnings Call Transcripts

ML Techniques: NLP, Sentiment Analysis, Text Classification

Metrics: Sentiment Prediction Accuracy, Impact on Stock Prices

Customer Personalization and Marketing

Analytics
ML models are used to personalize customer experiences, optimize marketing
campaigns, and improve customer segmentation.

Business Model
Revenue is generated through enhanced customer retention, cross-selling, and
personalized product recommendations.

Companies

Capital One: Uses machine learning for customer segmentation and

personalized offers.

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 JPMorgan Chase: Employs AI for targeted marketing and customer
relationship management.

American Express: Uses ML to personalize customer interactions and

optimize marketing strategies.

Key Metrics

Customer Lifetime Value (CLTV): The total value a customer is expected to

bring over their relationship with the company.

Conversion Rate: The percentage of marketing efforts that lead to successful

customer actions.

Churn Rate: The rate at which customers stop doing business with the
company.

Some of the projects you can consider to stand out are -

Personalized Financial Product Recommendations

Objective: Develop a recommendation system that suggests personalized
financial products based on user behavior.

Dataset: Bank Marketing Dataset

ML Techniques: Collaborative Filtering, Content-Based Filtering

Metrics: Click-Through Rate (CTR), Conversion Rate

Churn Prediction in Banking

Objective: Build a model to predict customer churn and suggest retention
strategies.

Dataset: Churn Modeling Dataset

ML Techniques: Classification Models (Random Forest, SVM), Survival

Analysis

Metrics: Churn Rate, Retention Rate

Customer Segmentation for Targeted Marketing

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 Objective: Segment customers based on transaction data for more targeted
marketing campaigns.

Dataset: Retail Banking Dataset

ML Techniques: Clustering (K-means, Hierarchical Clustering)

Metrics: Segmentation Accuracy, Marketing Campaign ROI

Hope this helps! Feel free to reach out to us for everything DS/ML -
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