Alternative data is known as "alternative' as it isn't from traditional data sources. It's a growing term common in finance, but many are yet to understand it. Over the years, the market for alternative data has spiked due to the increasing number of alternative data providers. Another possible contribution to this growth is the growing volume of alternative data full-time employees(FTEs). As a result of this growth, it's evident that the use of alternative data is likely to increase in the coming years. But what exactly is alternative data, and what can you use it for?
What Is Alternative Data?
This is data gathered from nontraditional data sources. Investors use this kind of data to give them insight before making any major decisions. It's the kind of data that gives information about a particular organization or company, but that company doesn't publish it. Instead, it's gathered and published by other organizations to help give unique insights into potential investment opportunities.
Examples of alternative data include; social media commentary, credit card transactions, satellite imagery or product reviews. These ideas help formulate leading trading ideas with the right information to move share prices.
How To Generate Alternative Data
There are at least there ways to generate alternative data, and they include the following:
- Data Generated By Sensors
This is mostly data from the Internet of Things and is usually unstructured. Devices that generate this data are mostly PoS systems, CCTVs, satellite imaging and parking lot sensors. They have a continuous working system that picks signals and sends them to other devices. This kind of alternative data can help companies and organizations determine which specific items are constantly transported to given locations and which stores receive more visitors.
- Data Generated By Individuals
People produce huge amounts of data each minute. These are in social media interactions, including shares, comments, retweets, likes, search engine trends and product reviews. Unfortunately, this kind of data is unstructured and thus hard to process. Nevertheless, you can use this kind of data to know how many times clients bought a specific product, the number of times customers visited a specific page and to make future decisions regarding a product release.
- Data Generated By Business Processes
Alternative data from business processes is also known as exhaust data. It is more structured data and can help provide the best insights when making financial decisions. This kind of data includes bank transactions, data from government agencies, credit card transactions and sales transactions. Investors can use this kind of data to make informed decisions before making major investment decisions. In addition, it offers insight into the trend of future share prices.
Sources Of Alternative Data
- Social sentiment
- Credit card transactions
- Geolocation data
- Web data
- Satellite imagery
- Email receipts
- weather
Most investors are conversant with alternative data. It provides better insight for investors into possible share prices, whether they will rise or not. It increases the chances of making better-informed decisions about specific subjects. However, it's crucial to note that traditional data sources are still crucial when analyzing stocks. But, they can only tell much due to their self-promoting and backwards-looking nature.
No comments yet