How Alternative Data for Finance can boost your business
The finance industry has long used data as part of its operations. Investments can be a risky business after all, and data can be used to limit the risks. Many financial companies have gotten used to employing data from more traditional sources as part of their analysis and assessment. Some of these traditional sources can include SEC filings, customer credit scores, press releases, and more.
As the world has become inundated with more and more data, the traditional data sources, while adequate, only give a portion of useful information. The finance industry can do so much more if they have more data. That’s where alternative data comes in. According to a 2020 survey from Dataminr, around 79% of institutional investors say they use some type of alternative data. It’s clear that many within the finance industry are turning to alternative data and seeing the results they want.
What is Alternative Data?
Put simply, alternative data is data that has been collected from anywhere outside traditional data sources. That can be different for pretty much any industry. In the case of the financial industry, if data comes from a source outside traditional areas like SEC filings and credit sources, it can safely be considered as alternative data.
When companies collect alternative data, it will sometimes come in a highly unstructured form. There’s also usually a lot of it. Many organizations will refer to alternative data as big data, but big data is mainly a reference to the amount, whereas alternative data refers to where it comes from.
Why Use Alternative Data?
With so many traditional data sources at their disposal, why would financial institutions and investors want to use alternative data? Traditional data sources have certainly served them well for many years, but there’s so much more data for them to use out there. Alternative data helps provide additional insights that these institutions wouldn’t normally have. This data gives them a bigger and clearer picture of the financial situation surrounding an individual, organization, industry, or even an entire economy. For example, some investment firms have recently taken to analyzing satellite imagery to assess the health of a local economy. This is done by taking satellite photos of shopping center parking lots and counting the number of cars there at any given time. From that information, they can determine how many people are shopping, which can indicate the current economic state.
How can Alternative Data for Finance help you?
When it comes to extracting data from the web, there’s virtually no limit to the type and quantity of data available. Our blog post takes you through a few typical data types and How Alternative Data can help in the Finance industry
Product data is one of the most complex but important sources of data that provide critical insights into the performance of a product or a brand. Amazon, Walmart, Target, eBay, etc are great examples of websites that provide thousands of data points to reveal company and category performance.
How is product data useful?
A Product’s rank on an online retailer’s bestseller list can indicate strong performance, while poor ranking and a discount history revealing early price reductions can expose inventory troubles and margin reductions.
Advertising data can provide a unique insight into the corporate spend behind product launch and anticipate revenue changes or slow-moving inventory, along with measurements for product traction and adoption.
YoY share trends from online retailers are powerful predictive indicators of revenue momentum and stock performance.
All this data offers lucrative opportunities for investors when determining market orders and positions.
SEC Filing Data
Taking a dive into the lengthy and often nebulous pages of a company’s SEC filings can lead to amazing investment insights. It arms investors with high-quality and reliable information, which is why the demand for web scraped SEC filing data is surging.
SEC filings have an immediate impact on stock performance. Markets are highly responsive to filings, whose submission has a direct relationship to increased trade volume. Scraping SEC filings, 10-Ks and 10-Qs produce enormous datasets, revealing non-trivial patterns in huge aggregations of data. Investors can use this information to identify rare opportunities for alpha as well as high performing outliers.
Investment managers want first-hand information on the product information and its current performance so that they can accurately predict the stock performance. While the companies quarterly earnings can provide such insights, it may be too late to make profitable decisions.
Scraping product reviews can allow investors to proactively gather information on a product life cycle and make more up to date assumptions about company earnings. After all, what’s one of the first metrics many of us look to when deciding on a product? The reviews.
Utilizing scraped product reviews to evaluate how a company or product is trending in the category and against Its competition helps hone the perception of risk in the investment decision-making process. Negative consumer reviews can increase stock volatility and pose a serious risk to shareholder value. By extracting product reviews historically and in real-time, smarter and more timely analyses can be performed.
Where can we get information straight from the horse’s mouth? A company’s website and its communications are a good place to start. Scraping data from the web may include analyzing company web traffic, announcements, and hiring activity with the aim of accessing otherwise exclusive insights.
The following are key pieces of data to monitor:
- Press releases
- Company web traffic
- Hiring activity
- Product announcements
- Social Media activities
These data give a full picture of a company’s inside track generating extremely useful insights on the company’s trajectories; saving companies from making serious investment blunders.
The rise of social media platforms like Facebook and Twitter has led to a flood of public sentiment. Public sentiment on social media gives insight into both the public at large and also any given subset. We might want to glean more information about it.
Tweets have incredible predictive value. Companies announce developments on social media channels like Twitter, Instagram, and Facebook, and sometimes breaking news hits the social media channels before any other traditional mediums. Company popularity and reputation can be monitored carefully and tracked against competitors.
With an opportunistic mindset and consistent dataset, investors can track and analyze the changes in a company’s internal framework to make financial decisions.
Harnessing the power of quality alternative data will be a decisive advantage in your search for alpha. More data and better data means your investment decision-making process produces more value and consistently.
The use of alternative data is the clear future of the financial industry. It’s more extensive, more up to date, and a better indicator than many of the traditional sources that have been around for years. The ironic thing is that once an alternative data source is used for long enough, it may no longer be considered alternative; it will simply become a part of the traditional data framework of the finance industry. No matter what happens, alternative data will likely be part of financial organizations for the foreseeable future.
We will be back with another interesting article till then get in touch with us and keep reading.