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8 Ways to Use Alternative Data to Improve Your Financial and Data Modeling

February 23, 2023 (3 min read)

It’s true. 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 as a Service (DaaS) 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 and company data. The benefit of using alternative data in this way is that you’re able to draw correlations between events and performance.  

Use case #2: Competitive intelligence 

By pulling in unique datasets around your competitors—for example, social commentary, financial information, and personnel information—you gain a better understanding of your competitors in the sector as well as in the stock market. 

Use case #3: Identification of market-moving signals 

Want to know the strategic thinking of other companies? Access broadcast transcripts to learn what top executives are saying in interviews to garner clues and insights into a company’s decision-making rationale. 

Use case #4: Financial services 

Take in archival news and company data to build quant models and power your predictive analytics like never before. Alternative data makes it possible. You can also leverage up-to-date news to gain current awareness of market conditions, sentiment, and more to inform your buy/sell decisions. 

Use case #5: Data modeling 

Alternative data can help you identify consequential patterns that impact your organization. It does this by allowing you to feed unique datasets into your algorithms and analytics, filling in the gaps where there was no data to previously draw from. The predictive insights you uncover will help better inform a wide range of business decisions. 

Use case #6: Historical analysis 

With alternative data, you can understand and anticipate corporate responses to opportunities and threats by running descriptive and predictive analytics against a wealth of historical data gathered from an array of unique sources. 

Use case #7: Market-moving events tracking 

Terrorist attacks, natural disasters, and pandemics can all have a major effect on the stock market, not to mention your specific industry. Alternative data helps you stay up to date on macroeconomic events such as these, so you can react quickly or even respond proactively to prevent any fallout altogether. 

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 DaaS comes in. It provides alternative data ready for immediate use—no matter the use case. Learn more about how Nexis DaaS provides the clean, enriched alternative data you need to power your regression and other analytics models here.