CUT THROUGH VOLATILITY AND MAKE BETTER INVESTMENT DECISIONS WITH ALTERNATIVE DATA

Tomas Montvilas, CCO at Oxylabs

 

Increased speculation, surging trade volume and a rapidly changing economic landscape are causing an unprecedented level of volatility in the markets. Investment professionals are increasingly looking to alternative data for clarity and to make better-informed investment decisions.

Despite record unemployment and a rapidly declining economy, the stock market is experiencing record highs across almost every sector. This perceived decoupling of the investment markets from the greater economy is concerning investment professionals looking to safeguard their funds from inflationary pressures and other serious issues that threaten to devalue portfolios of all sizes.

No one seems to be immune to the current events – and indeed, short-term market fluctuations are leaving investors of all types concerned about the future.

 

Alternative data provides clarity

Alternative data refers to data from non-traditional sources such as social media networks, forums, or credit card information. Besides providing timely and unique insights, alternative data can provide drilled-down, specialised information that can’t be obtained from traditional sources.

 

Alternative data is critical to decision making 

Technological advances have resulted in massive changes to the investment industry, ranging from how operations are conducted to the number and variety of investment instruments.

Investors of the past often based their decisions on the potential of an entity or commodity, such as a national expansion of a restaurant or clothing store or an investment in a growing public utility. More often than not, these decisions depended on sound economic and financial analysis along with geopolitical insights.

Today, the market has been turned upside down by algorithmic trading, derivatives speculation and over-valuations never seen before in human history. Add in trillions of dollars of government spending, currency devaluation and Covid-era economic restructuring, and we have a recipe for unprecedented volatility that threatens the livelihoods of investors on a global scale.

Alternative data has become an irreplaceable part of decision making. There are numerous benefits associated with alternative data:

  • Faster signal transmission. Traditional data sources like company filings, earnings calls, and other statistics provide data periodically and often with months of delay.
  • Increased granularity of data. Access to highly specific data points can reveal potential niche investments.

 

Alternative data can protect investments and identify new opportunities

While most day traders and speculators rely on short-term data and rumours, long-term traders look to alternative data for insights that help them make sound investment decisions.

Alternative data sheds light on real market events. It cuts through the irrational noise being made in the markets and gives investors insights into actual economic events that help them identify viable opportunities in emerging markets and sectors.

Recent events in the stock price fluctuations of GameStop can serve as a great example. As investor frenzy pushed GameStop prices to new heights, investment giants realised that keeping track of ticker sentiments on the internet can be a powerful tool for creating Alpha. There are now publicly available sources that track the ticker mentions in the subreddit /r/WallStreetBets (registration required).

 

Choosing alternative data types 

Investors and financial analysts looking to harness the power of alternative data have an entire world of information waiting to be explored. Consider the possibilities: According to Cisco, 90% of the data we have generated has taken place in the last two years and by 2022 4.8 billion people will use the internet across 29.5 billion networked devices.

Tracked sources are ever-expanding and diversifying to include social media sites, IoT, geolocation, e-commerce activities, data from government agencies, and much more. Some key areas of interest can include:

  • Supply chain data
  • Patent valuations and indicators
  • Environmental, Social and Governance data
  • Country risk scores
  • News and internet sentiment
  • Clinical trial milestones
  • Building permits
  • Government procurement and public contracts

 

Where to get alternative data

Sources of alternative data are numerous and growing, and determining the right choice largely depends on the data’s end purpose. Corporations across all sectors rely on firms that aggregate data from IoT, consumer websites, government sources and more, to enhance marketing strategies for their clients.

These data firms do not confine their scraping efforts to extracting data sets from standard sources. Many extract information from non-traditional sources such as tweets, turning them into alerts that gauge sentiment for use by traders, brands and other organisations that require real-time data. Others scrape application data to provide insights to brands that can aid product strategies and marketing campaigns.

 

How to extract alternative data

For most businesses, there are 3 options: buying alternative data from aggregators, outsourcing the scraping or building an in-house scraper. Buying or outsourcing data acquisition is simple as long as you are willing to pay a premium.

Extracting alternative data is a multi-faceted process that requires a scraping program and proxies. Success often depends on flexibility, so all data points are extracted successfully. Since all data sources are different, a hard-coded and inflexible schema is likely to result in serious issues during the data extraction process.

The use of high-quality, ethically-sourced proxies is essential to distribute requests and avoid server issues. The choice of either datacenter, residential proxies or next-generation solutions that leverage AI and ML technology depends on the type of data being extracted and its source.

Datacenter proxies offer unlimited traffic and are ideal for scraping raw public data with greater speed and stability. Residential proxies are suitable for more complex targets. Complex layouts requiring specialised customisation can be successfully scraped with the use of next-generation solutions powered by AI and ML technology that can extract public data with higher efficiency and greater success levels.

Not all businesses have an in-house scraping department. Financial organisations and investment firms can leverage ready-to-use solutions that provide data ready to be analysed. Besides freeing them from the complexity of data extraction, these tools allow companies to focus resources on analysing the data rather than focusing on the extraction process itself.

 

Wrapping up

The age of big data has arrived, offering solutions to investment professionals looking to cut through the prevailing stock market volatility to reveal clarity for better decision making. Alternative data, along with innovative scraping tools and proxies, can empower investors to make better decisions that can endure short-term instability for better returns over the long term.

 

spot_img

Explore more