8 Ways to Use Alternative Data to Improve Your Finance Data Modeling

When you gain access to a wealth of clean and accurate alternative data, you can greatly improve your financial modeling and predictive analytics. But before we get into the how, let’s back up a second and define the what.  

Alternative data is content that’s generated in numerous ways. From sensors that capture geo-location data and satellites that take snapshots of weather patterns to news and social media commentary. In other words: Alternative data is information that originates from sources traditionally untapped by the financial and business world. However, that’s a trend that’s quickly changing. 

Spending on alternative data is on the rise. And that means less conventional data is increasing in importance. Organizations across the world are using alternative data to better understand brand sentiment, market conditions, technology trends, and more. Specifically, hedge fund managers and other investors are using alternative data to complement traditional information and enhance their quantitative investing. For example, quant hedge fund managers might ingest news and company data, critical mentions of corporate leaders, and entities in media transcripts to provide context around financial indicators. 

But that’s just the tip of the iceberg. We’ve listed eight of our favorite use cases for alternative data. Read up on them below, and then head here to learn more about how Nexis® Data+ can connect you to a wealth of enriched, clean alternative data for any of these use cases and more. 

Use case #1: Descriptive and predictive analytics 

Access to the right alternative data lets you conduct backward- and forward-looking analyses of news, social media, satellite imagery and other datasets. For example, analyzing historical data on drought conditions and crop yields can help predict future food prices and supply chain disruptions. Or mining past airline flight data combined with weather reports could improve forecasting models for travel demand. Incorporating unique alternative data sources allows for more comprehensive and accurate descriptive and predictive modeling.

Use case #2: Market and Competitive intelligence 

By pulling in unique datasets around your competitors—like job postings that signal new product areas, customer reviews that highlight strengths and weaknesses, and web-scraped pricing data—you gain a better understanding of your competitors' strategies as well as potential disruptions or opportunities in the market. Alternative data provides insights that go beyond traditional market research.

MORE: How to conduct deeper market and competitive intelligence research

Use case #3: Identification of market-moving signals 

Want to know the strategic thinking of other companies? Access broadcast transcripts and analyze executive interviews and investor calls to garner clues and insights into a company's future plans, potential M&A activity, new market expansion, and more. This alternative data allows you to pick up on leading indicators before they show up in financial reports.

Use case #4: Financial services 

Take in archival news data on companies, industries, and the overall economy to build more robust quantitative models and power your predictive analytics. You can also leverage up-to-date news flow and data on events like labor strikes, supply shocks, and leadership changes to gain an information edge and better inform trading strategies. Alternative data helps quantitative investors generate alpha.

Use case #5: Data modeling 

Alternative data can help you identify consequential patterns that impact your organization by allowing you to feed unique datasets into your algorithms and analytics. For instance, combining satellite imagery of retail parking lots with consumer transaction data could provide a powerful signal for gauging retail sales performance. Enhancing models with alternative data uncovers insights missed by conventional data alone.

Use case #6: Historical analysis 

With access to years of historical alternative data gathered from an array of unique sources, you can run descriptive and predictive analytics to understand and anticipate corporate responses to past opportunities, crises, and market disruptions. This historical context is key for effective strategy development.

Use case #7: Market-moving events tracking 

Terrorist attacks, natural disasters, and pandemics can all have a major effect on the stock market and economy. Alternative data from news sources, satellite imagery, and other sensor data helps you monitor developing situations and potential black swan events, so you can react quickly or even respond proactively. Early warning signals allow you to get ahead of market disruptions.

Use case #8: Risk management 

Alternative data gives you access to data feeds related to adverse media, politically exposed persons (PEPs) lists, sanctions, and company financial indicators. Your risk assessments will become more thorough with the addition of these and other datasets, meaning you can better manage and avoid risk. 

There is no shortage of ways alternative data can improve your existing financial modeling and predictive analytics. Of course, not all alternative datasets are created equal. You need to be able to trust that the alternative data feeding your models is trustworthy, and that it won’t lead your decision-making astray. 

That’s where Nexis Data+ comes in. It provides alternative data ready for immediate use—no matter the use case. Learn more about how Nexis Data+ provides the clean, enriched alternative data you need to power your regression and other analytics models today.