Survey: Leveraging Alternative Data for Investment Decisions

Unexpected events can instantly impact markets, and as a result traders are starting to turn to non-traditional information sources - i.e., alternative data - to get ahead of the news cycle and maintain their edge. 

We invite you to participate in this short 2-minute survey on your use of alternative data and opinions on the alternative data landscape.

The Importance of Expanding Your Data Universe

In hindsight, maybe we should have seen the housing market collapse and financial meltdown coming, if only we’d known how to connect the dots. But while there was plenty of anecdotal evidence of deadbeat borrowers and overzealous lenders, traditional data sources didn’t paint a complete picture. Warnings signs that should have been flashing red showed up as mixed signals at best.

Much has changed in the last decade—not just in finance but across virtually every industry. Thanks to the proliferation of data and new ways of thinking about alternative information sources, we have a more complete and nuanced view of the world around us.

Alternative data—also referred to as non-traditional or unstructured data—makes it possible to quickly identify, search, and process information that was previously difficult to gather and analyse in a meaningful way.

Consider satellite images: Until recently, business leaders, civil engineers, environmental consultants, or investors needed to physically visit locations to understand and make decisions on, say, traffic patterns, for example. Now, they can not only use satellite images to analyse patterns remotely, they can do so at scale with advanced analytics that track changes and improve forecasts.

The same is true of how professionals monitor and respond to news, whether from traditional media outlets, official releases, or individuals who break information on social media. Alternative data providers use automation and artificial intelligence to analyse trends, and through such services as Twitter, can identify relevant developments as they’re unfolding in real time.

Investors were among the early adopters of alternative data—and understandably given that information is their currency. Yet, increasingly, alternative information is becoming a go-to source for professionals, policy makers, and advocates, among many others.

Here are a few examples of how organisations and individuals are using alternative and unconventional data to make timely and more informed decisions across a wide range of industries.

Oil Tankers and Oil Pricing

The price of oil is determined when it leaves a ship. Depending on what’s happening in oil markets, some tankers will, at times, wait outside of ports until its most advantageous to dock, thus impacting regional oil prices.

Recognising this, commodities traders and other professionals monitor tanker movements and look for patterns by using automatic identification system (AIS) tracking, which is on all commercial ships and available at such sites as Marine Traffic and Vessel Finder.

Oil and transportation companies know that tanker patterns can influence regional oil prices—and that vessel movements are tracked by interested parties. On some occasions, observers note vessels claim they are heading to one port, but go to another —or pull into a port, but never dock and head back out to sea.

Supply Chains and Logistics

Manufacturers are looking to improve speed and efficiency at every turn. Companies are therefore incorporating alternative data and advanced analytics into product development, manufacturing, and marketing.

One exciting frontier is supply chain management and logistics. Although alternative data is still in the early days of implementation in these areas, industry research suggests that companies are eager to play catch up.

It’s important to consider just how many variables are involved into getting products into the hands of customers, let alone on the same or next day: weather, traffic, vehicle availability, and efficiency, among others.

While product sensors and cameras improve efficiencies in the warehouse, supply chain managers are turning to alternative data sources to provide a better handle on what happens outside. For example, by tracking social media mentions of a product, companies are able to gauge product demand; they can in turn adjust their manufacturer schedules or shift deliveries accordingly.

Some of the biggest retailers are taking this a step further by analysing customer behaviour to predict and plan for purchases even before consumers add items to their carts.

Risky Mortgages and Borrower Behaviour

The intersection of finance and technology has radically changed how banks make credit decisions. Just as importantly, alternative data is giving investors in mortgage backed securities a better gauge of risk, particularly for unconventional mortgages.

Mortgage investors can now quickly access a wealth of data on everything from public loan filings and consumer behaviour, to vacation rental-by-owner listings. Previously, investors in these securities would need to do their own sleuthing, a manual process that required weeks of research.

With more information at the ready, investors can make informed decisions about the kinds of securities they buy, and get a better read on risk. Meanwhile, non-traditional borrowers, many of whom have struggled to secure financing in the wake of the financial crisis, are finding that more doors are opening.

Armed with alternative data, decision makers across industries are not only able to access and analyse information that is more timely and relevant, they can connect the dots of traditional data sources to see risk and opportunity from a whole new perspective.

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