Data is valuable for every industry sector in today’s era. Organizations analyze the available data to generate meaningful insights. These insights help understand the business landscape and make informed decisions. Similarly, the finance industry depends on data collection and analysis to make informed decisions. Most of us might be familiar with the traditional data sources in the finance industry. Traditional data sources include financial statements, economic indicators, stock market data, and credit ratings. Besides these sources, alternative data is used by finance organizations to make better decisions.
Read on to understand how to use alternative data in finance.
Comprehensive Alternative Data
Before discussing its uses, you must understand what alternative data is. You know traditional finance data, including corporate filings, stock market data, financial statements, economic indicators, and other sources. Alternative data is collected from non-traditional sources like web scrapping or geolocation data.Â
Some alternative data sources are outside the realm of finance organizations. Finance professionals rely on alternative data for improved decision-making. Many investors depend on alternative data to analyze market sentiment and technology trends.
Here are some data sources to understand alternative data in its entirety:
- Satellite Data:Satellite images analyze traffic and supply-chain movement. Many analysts can track infrastructural development in an area via satellite images.
- Sensor Data:Many analysts collect data from sensors in different devices to determine performance status, energy consumption, and other details.
- Social Media Data:People often share their views/sentiments on social media platforms. Finance professionals can analyze social media to understand the public’s sentiment regarding a brand, product, or service.
- Weather Data:Many finance organizations use weather data to make informed decisions.
- Audio Data:Many finance and brokerage firms analyze their call center data to improve customer service experience.
- Health Data:Many organizations collect health-related data to understand the behavior of the public. For instance, data from wearables is used to analyze customer behavior.
Ways to Use Alternative Data in Finance
Here’s how you can use alternative data in finance:
- For Predictive Modelling
Alternative data helps create effective predictive models. A finance or investment firm can become proactive by predicting the business environment. For example, an investment firm can use alternative data to make predictions about the market, investor sentiment, liquidity, and volatility. Investment decisions are based on the future market conditions.
- To Maintain Competitiveness
Alternative data in finance helps gather competitive intelligence. Alternative data related to competitors can be collected and analyzed by finance organizations. For instance, social media information regarding competitors can be collected to understand public opinion. Many investment firms rely on publicly available data to predict competitors’ future moves. Competitive intelligence can give you an edge over other finance organizations within the same jurisdiction or market.
- To Understand Customer Preferences
Alternative data involves social media interactions, call center data, credit card transactions, and many other sources. These sources allow finance organizations to understand customer behavior. Let us say a brokerage firm uses social media to know the preferred assets of investors. It can then offer the trading of preferred assets to attract more customers.
- For Improved Risk Assessment
Risk assessment is essential for finance organizations in today’s competitive business landscape. Alternative data can be analyzed to determine future risks and prepare for them. For instance, satellite imagery can be used to monitor the supply chain activity of different companies. It will allow us to know the health of different companies in a supply chain.
- For Historical Analysis
Historical alternative data related to a company, sector, or market can be collected in the same way in which traditional data. The historical data is analyzed to identify trends and predict future results. Historical analytics paves the way for descriptive or predictive analytics.
Conclusion
Alternative data in finance is more valuable than ever. With alternative data, finance organizations can analyze market sentiment, brand image, customer preferences, and more. Some finance organizations might need expert data analysts to leverage the power of alternative data. They can always partner with third parties to collect and analyze alternative data. Start analyzing alternative data to improve performance!
