Data! Every business service revolves around this. Recording, processing, and then analyzing such a large amount of data by the traditional method can be a strenuous job.
The financial industry has mastered using this data by recommending the perfect combination of strategies for their client investors to generate alpha through hedge funds. The financial service market has always relied upon traditional sources. These traditional sources include press releases, credit scores, SEC filings, and such.
However, with the entry of alternative data, these financial entities can now make use of extensive data beyond their traditional source barriers. Alternative data gives the perfect opportunities to such financial professionals to explore and push beyond the traditional limits of investing.
Not only in the financial industry but these days, it is very common for a non-financial company as well to use customer data recorded in their database through surveys that can offer their products, discounts, and other services.
Alternative Data is the data that falls beyond the borders of traditional data used by financial investors and other financial professionals to assess an investment opportunity. This data is a compilation of satellite imagery, data obtained from debit and credit card usage, online surveys, search preferences, email receipts, and such.
What Is Alternative Data?
Definition of Alternative Data:
There are several different definitions out there that define Alternative data but here is the one by Krishna Nathan, SIO of S&P Global – “Alternative data draws from non-traditional data sources so that when you apply analytics to the data, they yield additional insights that complement the information you receive from traditional sources.”
Explanation of Alternative Data:
Before understanding alternative data let’s take a look at traditional data and the problems they pose. Traditional data is collected through traditional sources such as financial reports, SEC filings, and many others as mentioned above. However, this data is openly available for everyone thus diminishing its useful edge.
With Alternative data in finance, an investor creates different models, using various methods based on different assumptions.
It helps them in evaluating various investments, helps in asset management, and financial opportunities. Unlike traditional data where the data is very primary and may only have financial receipts, under alternative data, the data can be the number of walk-ins to a particular business establishment or the number of visitors to a website.
In other words, Alternate data is any data not provided by the company whose progress and performance is being evaluated. There are a lot of Alternative data companies that offer alternative data analysis. Insights by Proxy collect a massive amount of scraped web content and allow its clients to compare dare on the latest areas of discomfort faced by investors. They help their users achieve all their money-metric goals. Apart from this they also provide non-financial data to companies.
Key Requirements of An Alternative Data Platform
An efficacious Alternative data program needs to be able to:
1. Store any amount of data at any given time.
2. Ingest data of any volume, type like structured data, semi-structured data, and unstructured data from any raw data source size providers.
3. Onboard new kind of data without any lag.
4. Discovery and testing of the ingested data to become relevant for use.
5. Personalizing the newly ingested data for usage.
6. Updating a layer that allows real-time tracking of use cases at any given point of time.
The Growth of Alternative Data:
Like every new thing in the market, Alternative data found itself surrounded by a lot of skepticism. Industrialists in the finance and services sector were unsure of its usefulness as traditional forms of data seemed to fulfill their needs.
They refused to look beyond. However, after investment giants like JP Morgan, Chase, and Goldman Sachs started endorsing their support on research in this area, others quickly started using alternative data. They started investing in ML i.e. Machine Learning and considered it as the future of financial data collection.
In recent years, the number of employees employed as full-time data researchers has increased immensely. More than the majority of the investors look up to aggregators in search of all the granular facts and details that traditional data cannot provide in making the best investment decision.
Benefits of Using Alternative Data:
- Saves valuable time: It saves the manager’s time as the program weaves through the data on their behalf. It helps the manager to focus his/her time on other important areas that require their attention.
- Access to various viewpoints: Traditional data gives a very straightforward view of the data collected by the company. Whereas Alternative data gives access to various viewpoints which helps the investor in having 360 thinking.
- Advanced evaluation of a company’s performance: The traditional data only gives historical insights into the company’s past performance. However, after using the alternative datasets, the portfolio managers can use real-time data to compare and measure the growth. As the Alternative data market size increases day by day, competition among companies gets fiercer as well.
How Is Alternative Data Generated?
There are various alternative data categories like Data generated by individuals, data generated by businesses, and data collected by sensors.
- By Individuals: This data is highly unorganized and large in volume. This data is collected through feedbacks and reviews left by people online, search history, online polls, and such. Or some data alternative words like statistics of all their information.
- By Businesses: This data is also known as “exhaust data” as it is the by-product of a business process. This kind of data is collected after a business activity is carried out. Like debit card or credit card transactions, banking records, other commercial transactions, etc. This data is structured and easy to organize.
- By Sensors: In the age of things of the internet, everything is picked by the sensor technology, recorded, and then transferred to various devices. CCTV cameras, POS sensors, satellite images, parking lot sensors are some technological sensors that help collect information.
Types of Alternative Data:
There are different types of alternative data generated:
1. Debit/ Credit transactions: These give detailed insights into a company’s sales and revenue. These help the investors in making decisions based on the digital trail of such companies’ performance instead of waiting for time-bound reports. All the pricing data is included in this.
2. Satellite data/ Geolocation: Using GPS and satellite imagery, which is a non-financial way, investors locate and keep track of the movement of the goods and services thus predicting the conditions of the global economy.
3. Digital data: The data scraped here is after sifting various websites. This includes information like web online traffic, online reviews, and engagement, popular web search, click-through ads, etc. the online presence of the company also helps the investor to make his decision.
These kinds of data is combined with the traditional data, for example, the SEC Filing of a company and their online presence will give substantial data to the investor.
How to Obtain Alternative Data?
Web scraping is the most popular method of obtaining relevant data from the internet. It requires the IT specialists to write codes which then helps them to jump from website to website, link to link to obtain relevant data, and then store them into the database. Organizing and transforming them into spreadsheets and forms for later use.
A lot of raw data is obtained through sensors. It is highly unprocessed and needs to be scoured through for relevant content. Various companies provide alternative web data solutions like hedge fund web scraping and other related services. Some investors also buy licenses from proxies companies providing required data and web scraping tools.
How to Use Alternative Data?
Alternative data can be used by investors to make decisions. After web harvesting, a large amount of data needs to be taken care of and processed. The sources need to be predetermined.
The data analyst might want to look into some alternative data sources and carry out a comparative study of alternative data use cases before reaching a particular decision. It is a small part of the big data. There are various types of non-financial performance data available as well. Yahoo finance alternative is the one to use as well.
How to Use Alternative Data in Finance and Investing?
Alternative data isn’t a replacement for traditional data. It provides additional insights on the already collected data. The data that is collected in a scraping process from non-traditional data sources like satellite imagery that helps in validating the investors’ investment thesis and provide confidence to their investment strategy answers the question – what is alternative data in finance.
Such data is also essential in data science financial markets. This is very fundamental for investment firms and hedge funds companies as sources of alpha. Alternative data in finance uses machine learning to understand various data.
Challenges in Implementing an Alternative Data Program
Creating and implementing a perfect alternative data program comes with some challenges of its own:
- Privacy and confidentiality: Sometimes companies disregard alternative data policy and step upon individual privacy leading to unethical issues.
- Onboarding new data: Enabling new onboarded data and a huge amount of data similar to big data with minimal efforts is very essential. But most of the time such programs crash and needs recoding to accommodate new data.
- Accommodating data change: In case of unorganized data, the system should be updated regularly and needs to be maintained now and then.
How can Proxy help you in web scraping for Alternative Data?
A proxy acts as a middleman, which takes your browsing requests and forwards it to the target server/website with a different IP address. The target server sees the masked IP address provided by the proxy server and not the real IP address through which your real IP address gets hidden.
Proxy plays a very important role when it comes to web scraping for alternative data.
Target Website server will never determine your real IP address.
As a proxy server hides your real IP address with its different authentic IP address, your requests for market scraping fails to identify you. Also, with regular proxy server IP rotation, different sets of authentic IPs are used every time while scraping which appears as if real humans from different locations are accessing those target servers.
Anti-Scraping tools won’t find you!
Nowadays, various websites employ anti-scraping tools to detect any bots scraping content. These Anti-scraping tools detect your bots and then block them from the website’s program. But when you use hardcore Residential proxies and that too with rotating residential proxies, anti-scraping tools would find it difficult to detect whether you are a bot or not.
As the residential proxies are based on real locations and real IP addresses, it appears as if real humans from real locations are looking through their website. This lowers the chances of anti-scraping tools detecting and blocking you.
Your Business will never get trapped of any phishing or malware attack!
Whenever you scrape on web using scraping software, there might be chances that your target website might contain any kind of malware which can directly harm your system. These malware attacks can harm your business’s confidential and sensitive data.
Using a proxy server comes as an effective boon here as it doesn’t lets the target website know your real IP addresses and devices. So, they will not be able to send any kind of malware to your actual or real IP address.
Alternative data is used to provide more insights to Alternatives investors and hedge funds in making their decisions. People need to understand the different types of sources of Alternative data to use it to their leverage. However, in doing so the top alternative data companies need to follow strict data protection regularly and protect data at all costs. The alt data providers should understand the market intelligence and collect data accordingly. For any proxy related details visit Proxiesforrent.
Why do you need proxies for web scraping?
In finance, Alternative data is the one that has not been traditionally used in forming important financial strategies. They can be email receipts, financial transactions, social media engagements, etc. Thus we need proxies web scraping for performing web scraping and not getting tracked by using alternative data analysis. Proxy Web scraping helps you to scrape multiple alternative data sources without getting you identified on the web.
Who uses alternative data?
Alternative data is extensively used by algorithmic traders to improve their current digital trading models. The use of Alternative data has increased by folds over the last decade by the traders.
What data do hedge funds use?
Hedge funds use a combination of traditional and alternative data. Hedge fund data sources used can be financial transactions, web traffic details, and customer sentiment evaluation for alternative data analysis.
What to look out for in an Alternative data provider?
When looking for an Alternative data provider, these things should be confirmed. The alternative data companies should have all the relevant data needed by you. The data should be economical for you. Ask about the time required to transfer the data in your system. Alternative data should complement and add to your traditional data. Always look for top alternative data companies.
How is Finding Correlations with Alternative Data easy?
Alternative data proxy metric helps you to carry the alternative data analysis by comparing and correlating between two variables. Alternative data analysis helps you to find the proportional ability between two variables by studying data intensively.