Social media and stock price correlation?

Study finds that social media popularity can be a predictor of stock health

Could social media following be a reliable indicator of the health of a company's stock? A new study released Wednesday by Arthur O’Connor, a doctoral student at Pace University, in association with Famecount.com, finds a significant statistical correlation between the number of followers a company has on sites like Twitter, Facebook, and YouTube, and how well their stock does. 

Data from Famecount.com, a social media analytics service, was examined over a 10-month period from April 2010 to February 2011 with a specific focus on the popular brands Starbucks, Nike, and CocaCola. Specifically, the brands' social media popularity was analyzed in terms of how many "likes," views, and followers each one had. The data was then compared against each of the companies' stock price movements and was found to have a direct correlation, which held even when the social media data was lagged 10 to 30 days. 

“By using social network popularity data on three major consumer brands, we were able to reliably predict their respective daily stock prices over a 10 month period – during which the stocks of the companies experienced radically different returns, with Starbucks climbing 29%, Nike appreciating by 14%, and yet Coke declining by nearly 6% – even when the social media data was lagged by as much as 30 days," said the study's author, Arthur O'Connor, in a prepared statement.

How striking were the parallels? Check out the scatterplot graphs:

So the next question is: What other brands are gaining in social media popularity and how I can gets me some a' them? The study notes that Walmart, Sony, and Viacom are all brands to watch as each has seen a recent increase in social media popularity. 

Arthur O'Connor is an IT management consultant working in the financial services industry and a doctoral student at Pace University.