What is Alternative Data?
Alternative data is any data that is gathered from nontraditional sources. For investors and companies, this is any financial data beyond company filings, press releases, earnings reports, and broker research.
This kind of data is valuable because it provides a much more granular view of a market, industry, or trend and often contains critical insights that will help an investor make more accurate and well-informed investment decisions and generate alpha. Because not all companies or investors rely on alternative data, it can also help those that do use it to stay ahead of the curve, anticipate market trends before they happen, and see opportunities they would otherwise miss if they were only relying on traditional data.
What Are the Types of Alternative Data?
There are three main subsets of alternative data:
- Generated through individuals
- Generated through business processes
- Generated by sensors
Let’s go through each one in more detail.
For the most part, data generated by individuals is unstructured. It comes primarily from social media, web traffic, and app usage, and it provides key insights into consumer sentiment and behavior. The insights from this data are integral for brands to understand brand performance and increase customer loyalty.
Individual-generated alternative data also encompasses expert interviews, such as those that can be found in an expert call transcript library.
Stream is an expert call transcript library for financial services and corporate professionals, housed within the AlphaSense platform. It offers first-hand perspectives from seasoned subject matter experts—such as thought leaders, former executives, customers, competitors, and partners—from a specific company or industry that would otherwise be inaccessible to professionals.
Another example of individual-generated alternative data is sentiment—social and market. If an investor or corporate professional is simply relying on mention counts as they skim a particular company’s documents and transcripts, they may risk missing the underlying meaning in what is being said about a topic. Sentiment is key to understanding the nuance behind what an executive leader, news source, or customer is saying—which can help with strategy and smarter decision-making.
But sentiment can be challenging for humans to always get right, particularly when working with pages and pages of data. Sentiment analysis is a natural language processing (NLP)-based feature that automatically parses out the tone and language nuance in a given document and helps you quickly pick up on the subtext of what is being said. Sentiment analysis is built into the AlphaSense platform, so you can easily recognize the positive, neutral, or negative sentiment in the source you are analyzing, and use that knowledge to make more informed decisions.
To learn more about Stream, or to start your free trial with AlphaSense, click here.
This is data that businesses generate and includes bank records, commercial transactions, credit card transaction records, and data from government agencies. This data is usually structured and provides a good indication of business performance and company sales forecasts.
Alternative data gathered from satellite images, weather forecasts, and geolocation falls into this category. This data is unstructured, and it can be used to give companies insight into consumer behavior and sociological patterns. Examples include foot traffic, property details, and a business’s ambiance environment—all of which can be helpful for investors looking to gain insight into the profitability of an opportunity.
What are the main use cases for alternative data?
Alternative data is useful because it’s immediate, frequently updated, and provides added context to certain trends or performance indicators that are otherwise ambiguous. It is most often used by scrappy investors looking for outside-the-box investment strategies, but it can also be highly useful for corporations and private equity firms to gain a better sense of the market and make strategic decisions.
Here are some of the most common use cases:
Buy-side analysts use alternative data to validate a potential investment and gain a 360 degree view of all potential benefits and risks associated with that investment. Expert calls are particularly useful here, as industry experts are often able to shed light on the inner workings of a company or industry and offer a perspective you won’t find anywhere else.
When keeping tabs on assets and investments, timeliness is the name of the game. Alternative data sources provide frequent and timely updates, allowing analysts to spot, assess, and take action on any changes quickly before they result in a huge loss.
The AlphaSense platform takes this a step further, allowing you to set up alerts and watch lists for specific companies and topics, so that you are notified immediately when anything in your portfolio requires your attention.
Alternative data can fill in the gaps in competitive research, whether you are a corporation looking to build a winning strategy, or a sell-side investor trying to get the full picture of a market before your competition does. Because alternative data is current and updated more frequently than traditional financial data, it can empower more informed decision making and give you a competitive edge.
Alt data such as social media commentary, smartphone geolocation data, and product reviews can help with strategic idea generation and keeping tabs on competitors. Beyond those alt data sources, expert calls are conducted by buy-side analysts, so you can be sure they go deep on what matters. Competitive moats, tech stacks, industry headwinds and tailwinds—and most importantly, they ask the questions you didn’t think to ask.
Buy-side analysts, private equity firms, and hedge funds use alternative data to help them find deals with the biggest potential ROI and smallest risk. Consumer data like foot traffic, social media activity, and purchasing preferences (gleaned by web scraping and social listening tools) can give insight into how consumers truly feel about a business, and how the business stacks up against its competitors.
AlphaSense helps you discover winning investment opportunities faster with our patented AI search technology, which allows you to bypass any irrelevant data and get to the most crucial insights, no matter the document or source you are perusing. Stream expert transcripts also equip you with every perspective you need to make the most informed decision on a potential investment.
Forecasting & Risk Management
Alternative data offers one of the best ways to keep ahead of stock price movement and assess the risks associated with a particular public company. Online social sentiment and transaction data provide quick and current insight into how a company is performing or how it may be affected by certain social trends or movements.
Expert insights, such as those found in Stream, can be particularly useful in predicting outcomes for particular companies. These experts have been there and can contextualize raw data and explain whether or to what extent a particular market-moving event can affect your bottom line.