STOCK PRICE PREDICTION

Siddharth J, Manoj Kanna L, Laris Peter P

Abstract
In recent years, the prediction of stock market trends has garnered
significant attention due to its potential for high financial returns and
economic impact. This paper proposes a novel hybrid approach to
improve the accuracy of stock market predictions by combining multiple
machine learning and statistical algorithms. Specifically, we integrate
Linear Regression, ARIMA, K-Nearest Neighbors (KNN), Random Forest,
and Recurrent Neural Networks (RNN) to form a robust predictive model.
Our study explores various hybrid configurations including: Linear
Regression; ARIMA and KNN; RNN, KNN, and Random Forest; and RNN,
KNN, and ARIMA. Each combination leverages the unique strengths of
individual algorithms to enhance predictive performance. Through
extensive experiments on historical stock market data, we demonstrate
that our hybrid models outperform traditional single-algorithm approaches
in terms of accuracy and reliability. The results indicate that the synergistic
use of these algorithms can capture complex market dynamics and
provide more accurate predictions, thus offering valuable insights for
investors and financial analysts.
Key Terms: Stock Market Prediction, Hybrid Algorithms, Linear
Regression, ARIMA (AutoRegressive Integrated Moving Average), K-
Nearest Neighbors (KNN), Random Forest, Recurrent Neural Network
(RNN), Machine Learning, Financial Forecasting, Predictive Modeling

Introduction short in capturing the intricate

patterns and trends that influence
The stock market is a complex
market behavior. In recent years,
and dynamic environment where
machine learning and statistical
accurate predictions can yield
algorithms have shown promise in
substantial financial gains.
enhancing the accuracy of stock
Traditional methods of stock
market predictions. However, no
market prediction, such as
single algorithm has proven to be
technical analysis and
universally superior due to the
fundamental analysis, often fall
diverse nature of financial data neighborhood information,
and market conditions. and ensemble learning.
To address this challenge, this 4. An integration of RNN,
paper explores the use of hybrid KNN, and ARIMA to
algorithms to improve the combine deep learning
accuracy of stock market capabilities with traditional
predictions. By leveraging the time series analysis.
strengths of different algorithms,
Our approach involves a
we aim to develop a more robust
comprehensive evaluation of
and reliable predictive model.
these hybrid models using
Specifically, we investigate the
historical stock market data. By
combination of the following
comparing the performance of our
algorithms: Linear Regression,
hybrid models against traditional
ARIMA (AutoRegressive
single-algorithm approaches, we
Integrated Moving Average), K-
aim to demonstrate the potential
Nearest Neighbors (KNN),
improvements in predictive
Random Forest, and Recurrent
accuracy. The primary
Neural Networks (RNN). Each of
contributions of this paper are
these algorithms has unique
threefold:
advantages in handling various
aspects of financial data, such as 1. Proposing a novel
linear trends, seasonal patterns, framework for stock market
and nonlinear dependencies. prediction using hybrid
algorithms.
The proposed hybrid models
include: 2. Conducting extensive
experiments to assess the
1. Linear Regression for
effectiveness of different
capturing linear
algorithm combinations.
relationships in the data.
3. Providing insights into the
2. A combination of ARIMA
practical implications of
and KNN to address both
using hybrid models for
time series patterns and
financial forecasting.
local data structures.
In the following sections, we
3. A synergy of RNN, KNN,
review related work in the field,
and Random Forest to
describe the methodology of our
exploit temporal
hybrid models, present the
dependencies,
experimental results, and discuss
the findings and their implications
for future research and practical The concept of hybrid algorithms
applications. involves combining multiple
predictive models to leverage
their individual strengths and
Background Study mitigate their weaknesses. This
The accurate prediction of stock approach can lead to improved
market trends has long been a performance by capturing
topic of interest for researchers different aspects of the data.
and practitioners in finance and Hybrid models have been
economics. Traditional methods, successfully applied in various
such as technical and domains, including weather
fundamental analysis, provide forecasting, medical diagnosis,
valuable insights but often lack and financial predictions.
the precision required for high- 3. Linear Regression
frequency trading and complex
Linear Regression is a
market environments. The advent
fundamental statistical method
of machine learning and statistical
used to model the relationship
techniques has opened new
between a dependent variable
avenues for enhancing predictive
and one or more independent
accuracy.
variables. Despite its simplicity,
1. Machine Learning in Stock Linear Regression can provide
Market Prediction valuable baseline predictions and
Machine learning algorithms have is often used as a component in
been increasingly applied to stock more complex models.
market prediction due to their 4. ARIMA (AutoRegressive
ability to model complex patterns Integrated Moving Average)
and relationships within data.
ARIMA is a widely used time
Techniques such as Support
series forecasting technique that
Vector Machines (SVM), Decision
models temporal dependencies in
Trees, and Neural Networks have
data. It combines autoregressive
demonstrated significant potential
and moving average components
in capturing market trends.
to capture linear trends and
However, individual machine
seasonal patterns. ARIMA has
learning models often face
been effectively used in financial
limitations due to overfitting, high
time series analysis but may
variance, or the inability to
struggle with non-linear
capture long-term dependencies.
relationships.
2. Hybrid Algorithms
5. K-Nearest Neighbors (KNN) capture long-term dependencies
effectively. RNNs are powerful but
KNN is a simple, yet powerful,
computationally intensive and
non-parametric algorithm used for
require large datasets for training.
classification and regression
tasks. It predicts the value of a 8. Previous Studies on Hybrid
target variable based on the 'k' Models for Stock Market
nearest observations in the Prediction
feature space. KNN is particularly
Several studies have explored the
useful for capturing local
use of hybrid models to enhance
structures in the data but may
stock market prediction accuracy.
suffer from high computational
For instance, combining ARIMA
cost and sensitivity to the choice
with machine learning techniques
of 'k'.
such as SVM and Neural
6. Random Forest Networks has shown promising
results. Hybrid models that
Random Forest is an ensemble
integrate statistical and machine
learning method that constructs
learning methods can exploit the
multiple decision trees during
advantages of both approaches,
training and merges their results
leading to more accurate and
to improve accuracy and control
reliable predictions.
overfitting. It is highly effective for
handling large datasets and 9. Challenges and Considerations
complex interactions between
Despite the potential benefits, the
features. Random Forest is robust
development of hybrid models for
and provides valuable insights
stock market prediction involves
into feature importance.
several challenges. These include
7. Recurrent Neural Networks the selection of appropriate
(RNN) algorithms, parameter tuning,
integration of different models,
RNNs are a class of neural
and computational complexity.
networks designed for sequential
Additionally, the dynamic and
data. They maintain a memory of
volatile nature of financial markets
previous inputs, making them
requires continuous adaptation
suitable for time series
and validation of predictive
forecasting. Variants such as
models.
Long Short-Term Memory (LSTM)
networks have been developed to In this study, we build upon the
address issues of vanishing existing literature by proposing
gradients, enabling RNNs to and evaluating novel hybrid
models that combine Linear consistency of the dataset. The
Regression, ARIMA, KNN, following steps are performed:
Random Forest, and RNN. Our
 Missing Value Imputation:
aim is to demonstrate the
Missing values are handled
effectiveness of these
using techniques such as
combinations in improving stock
interpolation or filling with
market prediction accuracy,
mean/median values.
thereby providing valuable
insights for investors and financial  Normalization: The data is
analysts. normalized to bring all
features to a common
scale, which is essential for
Methodology machine learning
algorithms.
The proposed methodology aims
to enhance the accuracy of stock  Feature Selection: Relevant
market predictions by leveraging features are selected based
hybrid algorithms. This section on their correlation with the
details the steps involved in target variable (stock
developing and evaluating the prices). This includes
hybrid predictive models, technical indicators such as
including data collection, moving averages, RSI
preprocessing, model (Relative Strength Index),
development, and performance MACD (Moving Average
evaluation. Convergence Divergence),
etc.
1. Data Collection
 Train-Test Split: The dataset
We utilize historical stock market
is split into training and
data from reliable financial
testing sets to evaluate the
sources such as Yahoo Finance,
model's performance.
Google Finance, and other
Typically, 80% of the data is
financial databases. The dataset
used for training and 20%
includes daily stock prices (open,
for testing.
high, low, close), trading volume,
and other relevant financial 3. Model Development
indicators over a period of several
We develop and evaluate four
years.
hybrid models, each combining
2. Data Preprocessing different algorithms to leverage
their strengths.
Data preprocessing is a crucial
step to ensure the quality and 3.1 Linear Regression
Linear Regression is used as a Short-Term Memory)
baseline model to capture linear networks, are used to
relationships in the data. The capture long-term
model is trained using the least dependencies in the time
squares method to minimize the series data. The
error between predicted and architecture includes
actual stock prices. multiple LSTM layers
followed by dense layers for
3.2 ARIMA and KNN Hybrid
output prediction.
This hybrid model combines
 KNN Model: KNN is used to
ARIMA and K-Nearest Neighbors
capture local patterns and
(KNN):
relationships in the data.
 ARIMA Model: ARIMA is The residuals from the RNN
used to capture the linear model are fed into the KNN
temporal dependencies in model for further
the stock prices. The model refinement.
parameters (p, d, q) are
 Random Forest Model:
determined using
Random Forest is
techniques such as ACF
employed to enhance
(Autocorrelation Function)
prediction accuracy by
and PACF (Partial
aggregating the results from
Autocorrelation Function)
multiple decision trees. It is
plots.
applied to the combined
 KNN Model: KNN is applied output of the RNN and KNN
to the residuals of the models.
ARIMA model to capture
3.4 RNN, KNN, and ARIMA
non-linear patterns. The
Hybrid
value of 'k' is selected
based on cross-validation to This hybrid model combines
optimize performance. RNN, KNN, and ARIMA:
3.3 RNN, KNN, and Random  RNN Model: Similar to the
Forest Hybrid previous hybrid, RNN
(LSTM) is used for
This hybrid model integrates
capturing long-term
Recurrent Neural Networks
dependencies.
(RNN), KNN, and Random
Forest:  KNN Model: KNN is used to
refine the predictions by
 RNN Model: RNNs,
specifically LSTM (Long
 focusing on local data  Pandas and NumPy for
structures. data manipulation and
preprocessing.
 ARIMA Model: ARIMA is
integrated to handle linear 6. Cross-Validation
temporal patterns and
To ensure the robustness of our
seasonality in the data.
models, we employ k-fold cross-
4. Performance Evaluation validation, typically with k=5. This
technique helps in mitigating
The performance of each hybrid
overfitting and provides a more
model is evaluated using
generalized evaluation of model
standard metrics:
performance.
 Mean Absolute Error (MAE)
7. Results and Discussion
 Mean Squared Error (MSE)
The results of the experiments are
 Root Mean Squared Error analyzed and discussed,
(RMSE) highlighting the effectiveness of
 R-Squared (R²) hybrid models in improving stock
market prediction accuracy. The
Additionally, we perform a findings provide insights into the
comparative analysis of the hybrid strengths and limitations of each
models against individual hybrid approach.
algorithms to demonstrate the
improvements in predictive By following this methodology, we
accuracy. aim to develop a comprehensive
and reliable framework for stock
5. Implementation market prediction using hybrid
The models are implemented algorithms, ultimately contributing
using Python with libraries such to the field of financial forecasting
as: and decision-making.

 Scikit-learn for machine

learning algorithms. Model Building
 Statsmodels for statistical The model building phase
models (ARIMA). involves developing and training
 TensorFlow/Keras for deep the hybrid models using various
learning models (RNN). combinations of machine learning
and statistical algorithms. The aim
is to create models that leverage
the strengths of each algorithm to
improve the overall accuracy of  Train ARIMA Model: Fit the
stock market predictions. Below, ARIMA model using the
we describe the process for training data to capture
building each hybrid model. linear temporal
dependencies.
1. Linear Regression Model
 Generate Residuals:
Step 1: Prepare Data
Calculate the residuals
 Extract relevant features (errors) from the ARIMA
and normalize the data. model, which represent the
 Split the data into training non-linear components of
and testing sets. the time series.

Step 2: Train Linear Regression Step 2: KNN Model

Model  Prepare Residuals: Use the
 Use the training data to fit residuals from the ARIMA
the Linear Regression model as input for the KNN
model. model.

 Implement the model using  Train KNN Model: Fit the

the Ordinary Least Squares KNN model to the residuals.
(OLS) method. Use cross-validation to
select the optimal value of k.
Step 3: Evaluate Model
 Predict Residuals: Predict
 Predict stock prices on the the residuals on the test
test data. data.
 Calculate performance Step 3: Combine Predictions
metrics such as MAE, MSE,
RMSE, and R².  ARIMA Predictions:
Generate predictions from
2. ARIMA and KNN Hybrid Model the ARIMA model.
Step 1: ARIMA Model  KNN Residual Predictions:
 Determine Model Add the predicted residuals
Parameters: Use ACF and from the KNN model to the
PACF plots to select ARIMA predictions to obtain
appropriate values for p the final stock price
(autoregressive), d predictions.
(differencing), and q Step 4: Evaluate Model
(moving average)
parameters.
  Calculate Performance  Predict Residuals: Use the
Metrics: Evaluate the trained KNN model to
combined model using predict residuals on the test
MAE, MSE, RMSE, and R² data.
on the test data.
Step 3: Random Forest Model
3. RNN, KNN, and Random
 Prepare Combined Data:
Forest Hybrid Model
Combine the original
Step 1: RNN (LSTM) Model features, RNN predictions,
and KNN residual
 Prepare Data: Transform
predictions.
the data into a suitable
format for the RNN,  Train Random Forest
including creating time Model: Train the Random
windows of past Forest model on the
observations. combined dataset to
enhance prediction
 Design RNN Architecture:
accuracy through ensemble
Create an LSTM-based
learning.
RNN model with input,
hidden, and output layers.  Predict Stock Prices:
Fine-tune the number of Generate final stock price
layers and neurons. predictions using the
trained Random Forest
 Train RNN Model: Train the
model.
LSTM model using the
training data to capture Step 4: Evaluate Model
long-term dependencies.
 Calculate Performance
 Generate Residuals: Metrics: Evaluate the model
Calculate the residuals from performance using MAE,
the RNN model. MSE, RMSE, and R² on the
test data.
Step 2: KNN Model
4. RNN, KNN, and ARIMA Hybrid
 Prepare Residuals: Use the
Model
residuals from the RNN
model as input for the KNN Step 1: RNN (LSTM) Model
model.
 Prepare Data: Transform
 Train KNN Model: Fit the the data into time windows
KNN model to the residuals suitable for RNN input.
and select the optimal k
through cross-validation.
  Design RNN Architecture:  Generate ARIMA
Create and fine-tune an Predictions: Predict stock
LSTM-based RNN model. prices using the ARIMA
model.
 Train RNN Model: Train the
LSTM model using the Step 4: Combine Predictions
training data.
 RNN Predictions: Generate
 Generate Residuals: predictions from the RNN
Calculate residuals from the model.
RNN model.
 KNN Residual Predictions:
Step 2: KNN Model Add the predicted residuals
from the KNN model to the
 Prepare Residuals: Use the
RNN predictions.
residuals from the RNN
model as input for the KNN  Final Predictions: Combine
model. the RNN+KNN predictions
with ARIMA predictions to
 Train KNN Model: Fit the
obtain the final stock price
KNN model to the residuals
predictions.
and select the optimal k.
Step 5: Evaluate Model
 Predict Residuals: Use the
KNN model to predict  Calculate Performance
residuals on the test data. Metrics: Evaluate the model
using MAE, MSE, RMSE,
Step 3: ARIMA Model
and R² on the test data
 Train ARIMA Model: Fit the
ARIMA model to the original
time series data.

Results

First of all, the stock data from Zomato is taken for analysis, and using
Linear Regression algorithm, the data are analysed using graphical
depiction, and the important packages used for getting the outcome of
an model are pandas, matplotlib, sklearn, etc. Hence the result is
received by the linear regression model, as an graph structure.
References
 A.Murkute and T.sarode, “ Forecasting market price of stock using
artificial neural network” Int j.compute.Appl.vol. 124 no. 12 pp 11-15,
Aug.2015
 V.Gupta and M.Ahmad, “ Stock price trend prediction with long
short-term memory neural network.” Int J.compute. Intell. Stud. Vol.
8, no.4 2019
 V.R Madireddy, “Stock market prediction in BSE using long short-
term memory(LSTM) algorithm” Int J.innov,
Res.comput.commun.Eng, vol.6, no.1 pp.561 Jan.2018
 H.Cui and Y.Zhang, “ Does investor sentiment affect stocvk price
crash risk?” July.2019
 H.Liu and Y.Hou “Application of Bayesian neural network in
prediction of stock time series”.2019