Top 5 Sources of Alternative Data (advices for investors) in 2024
The use of alternative data amongst hedge funds and investment managers is on the rise. One reason behind this popularity could be the nature of the data itself. Whereas traditional financial data is compiled from regular sources, such as financial statements and quarterly reporting, the appeal of alternative data is because of its sourcing from non-conventional origins. In this article, we aim to explain from where, and by which methodology, alternative data is exactly sourced.
What are the sources of alternative data?
An alternative data set can be compiled from various sources, such as:
A financial transaction involves the exchange of items in parity. A company’s different types of financial transactions might include, but are not limited to, the following:
- Cash/email/consumer receipts
- Deposit corrections
- Purchase orders
- Travel expense records
- Credit card charges
Data aggregators have the capability of collecting these financial data, although each might be specialized in one single area. Earnest Research, for instance, is a data aggregator that specifically focuses on retrieving anonymous credit, debit, and bill payments charges.
We have a dedicated article explaining the extraction of financial data from the web.
Advice for investors: Look at the financial transactions of a company to gain insights into the financial effects of its business activities. Whereas financial statements reveal in-depth details about a company’s health, financial transactions would show the day-to-day handling of finances.
There are mainly two overall categories of data that the Internet provides:
- Web data: These include a company’s job listing, company ratings, product rankings, discounts and promotions, customer demographics, and more.
- Web traffic data: These include customers’ purchase behavior, click-through rates, application usage, and more.
One of the ways in which data is collected from the Internet is through web scraping. There are specialized companies that can do this for you.
Reminder for investors: What you see on the website of a particular company is not all that is there on the internet. There’s much more when it comes to web and traffic data. Utilize the services that data collecting agencies offer to get a more comprehensive outlook into a company’s online data.
Sensors are generally embedded in devices, such as CCTV cameras, mobile phones, satellites, and other IoT devices. Their function is to monitor the movements of people, vehicles, and goods in and around a specified radius range. There are companies specializing in quantifying and grouping the data that these devices generate and providing them to the investors.
Advice for investors: Use the locational sensors’ data to gain insights into a business’ ambience environment (i.e. its nearby competitors, its environment, etc.) and the amount of foot and car traffic in its vicinity (i.e. images of parking lots, pedestrians, etc.).
The main type of data that extractors can get from mobile devices is geographical data. More specifically, there are companies that have access to trillions of geographic coordinates collected by smartphone apps. They then use that to measure the amount of activity in and around a business or a plant that investors can use to make an estimated guess about the economic activity.
In 2018, an analytics company called Thasos kept track of the movement of workers at a Tesla production plant in Fremont, Calif., to see if they were really ramping up production of the Model 3 sedan, as Elon Musk had promised investors that they would.
Thanks to the geographical data, Thasos was able to inform its clients of the increased number of working hours at the Tesla plant. The subscribed few who acted early on the knowledge were able to see an increased 9.1% increase in their shares.
Social media data is the collected information from social networks that show how users share, view, or engage with the content of a company’s profile. These numbers, such as, shares, likes, mentions, impressions, hashtags, URL clicks, keyword analysis, followers, and comments are usually a good indication of how in-demand and popular a company is to the public and to the market in which it’s operating.
Advice for investors: Collect social media sentiment to see how favorable consumers view a company. If an enterprise’s social media feed is filled with negative comments and viewpoints, turning the unfavorable outlook around, if ever, will take time and effort.
For more on alternative data
To learn more about alternative data’s use cases and case studies in investment, read:
Finally, if you think your business would benefit from leveraging alternative data, we have our own data-driven list of 24 vendors.
We can help you find the right tool for your business:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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