How Alternative Data is Transforming the Financial World

In recent years, the world of financial markets has experienced more upheaval than ever. The accelerating move towards digitization, surging numbers of individual investors, and a global pandemic that has thrust businesses online while simultaneously rendering decades of data effectively worthless are just some of the massive forces shifting the way markets operate.

Despite these changing circumstances, financial firms are as competitive and demanding as ever. In a sector that has long relied on technical analysis and reports-based data, the pressure is on investors to find new ways of analyzing the market in order to generate much sought-after alpha.

While the massive wave of digitization and e-commerce has made a great deal of data unreliable, it also means people are spending more time than ever on their phones and computers, doing business with companies through websites and mobile apps.

These interactions produce immense volumes of detailed, quantifiable data that can be gathered and analyzed to gain deep insights into a company’s performance, consumer trends and sentiment, and much more. Many financial firms have taken to using these unorthodox data sources in order to generate alpha. Collectively, this form of data has come to be known as Alternative Data.

Topics:

• Alternative data
• How alternative data is used
• Alternative data-gathering challenges
• Alternative data-gathering solutions

Alternative data

In a nutshell, alternative data describes any data set that helps investors make better financial decisions and does not derive from “traditional” data sources such as government indexes, corporate reports, technical analysis, etc.

This includes a broad and ever-expanding list of sources, including social media, web traffic, mobile apps, credit and debit card transactions, weather, satellites, and the list goes on and on.

The public web is by far the richest source of alternative data. Every company conducts business online, and thus produces an abundance of “digital exhaust” in the form of analytics, patent data, social media sentiment, and more.

Additionally, broader data points such as supply chain information, competitor pricing, product trends, and a host of other factors make the public web a potent resource for alternative data gathering.

The ability of alternative data to tangibly move the needle has driven investors to discover a multitude of ways of incorporating alternative data towards improving their predictions and generating alpha. Integrating alternative data into investment strategies is now the market standard, and firms or individuals not taking advantage of alternative data will increasingly be left behind.

How alternative data is used

The impact of alternative data on financial firms is nothing short of a paradigm shift. With constant updates, multiple data sources, and completely new indicators for the performance of companies and markets, alternative data gives investors powerful new methods for analyzing markets, companies, and sentiment.

New dimensions of data

Statistics like conversion rates, web searches, and traffic analytics give investors real-time, quantifiable data with which to analyze company performances.

High rates of conversion, for example, provide a strong indicator of a company’s financial success and can give investors the confidence to make an investment with a higher probability of success. This data simply did not exist in traditional data sets.

Traditional data corroboration

Hedge funds and other financial firms continue to use traditional data sources but can now look for confirming signals in alternative data.

Despite strong gains in its stock price, declining searches in popular search engines and a consequent reduction in web traffic for a company can be a warning sign for decreased earnings. This can serve as an early signal to close a position or to brace for a dip in stock prices.

Constant updates

Unlike traditional data, which typically includes quarterly, bi-annual, or even annual reports, alternative data is constantly changing and can be gathered and analyzed continuously in order to generate more alpha than a lagging competitor.

Alternative data gathering challenges

While the benefits of alternative data are hard to overstate, collecting and implementing it is no easy task. There are a number of challenges to overcome which require precise and reliable technical solutions.

Unstructured data

Alternative data is collected from many different sources, and with just 0.6% of websites supporting standardized APIs, the overwhelming majority of data is hosted on websites that have no shared layout, structure, or format.

Being able to extract data accurately from any website is a tedious process that takes up precious resources and demands ongoing maintenance as websites alter and upgrade their design.

Reliable Access

Using automated tools to collect alternative data also means making sure those tools have smooth, uninterrupted access to their target websites.

Furthermore, it is critical to be able to access websites from multiple geo-locations, allowing for data gathering to circumvent regional restrictions as well as access localized versions of webpages. For example, social media websites, e-commerce platforms, and search engines can present entirely different content depending on the location of the user.

IP Infrastructure is a critical element in alternative data gathering, as it enables your data pipelines to continuously retrieve fresh data from any location without interruption.

Speed and Scalability

Speed is always mission-critical for financial firms. The race to react to fresh insights ahead of the market can be the difference between generating alpha and missed opportunities or worse, losses.

Collecting alternative data in real-time, and being able to scale to as many sources as necessary and potentially large data sets, is absolutely essential.

Alternative data-gathering solutions

The complexities involved with gathering alternative data mean that initially, only large hedge funds and financial institutions with expansive in-house development teams could afford to build and maintain the systems necessary to do so effectively. Nimble believes in commoditizing web data by making it easily accessible to businesses of all sizes.

Nimble’s platform as a service was created to streamline and simplify the data-gathering process, enabling your analysts to focus on generating alpha while Nimble’s web data pipelines deliver the data they need seamlessly.

Nimble’s Data Platform guarantees you’ll be able to gather data from any website with a 100% success rate. Built for performance, the data platform streams web data in real-time, maximizing your reaction time and ensuring you can capitalize on new opportunities.

Alternative data can be gathered from numerous sources, and the data platform was designed to scale automatically and seamlessly to handle any workload and deliver it directly into your preferred storage using a number of customizable formats. Using the data platform is effortless, with an easy-to-use API backed by best-in-class tech support and customer service.

The data platform integrates natively with Nimble’s IP Infrastructure, a global, algorithmically-optimized residential proxy network. Our proxy Infrastructure provides the global distribution and high-performance networking solution that enables the data platform to quickly and reliably access data from any geolocation on the planet.

Nimble’s platform was designed from the ground up to disentangle companies from the technical hurdles of gathering alternative data and to instead provide a unified and effortless solution that frees you to focus on your business goals.

Reach out if you’d like to learn more about how Nimble can help your company collect alternative data.