Alternative Data and Artificial Intelligence to enhance investment decisions.
WHAT IS ALTERNATIVE DATA
Alternative Data is non-traditional, big and often unstructured data coming from digital environments (i.e. blogs, forums, social or e-commerce platforms, maps, etc.).
HOW TO USE ALTERNATIVE DATA
Collecting, selecting, interpreting and weighing the Alternative Data implies an algorithmic approach to digital information (i.e. to convert texts into numbers) and consequently specific skills, unique expertise and cutting-edge technology.
Alternative Data delivers signals that can be used in financial decision-making processes, alongside traditional financial statements, quarterly reports, Prices and Volumes. Artificial Intelligence provides the opportunity to gather essential information from several different sources and allows an integration within a cohesive application.
This means that the most critical investment decisions, or even certain actions/reactions in relation to a specific financial asset, might be taken with a greater certainty, gaining in this manner a competitive edge powered by updated and exclusive knowledge and strategic risk-forecasting.
You can leverage Alternative Data also for Stock Selection. Using Alternative Data combined with traditional financial data, you can identify the most relevant companies and stocks in new sectors or rising trends or opportunities and risks related to good or bad news.
Over 90% of the world’s current data have been produced in the past two years – of which only 0.5% have been analyzed.
MAIN AND WEAK SIGNALS FROM ALTERNATIVE DATA
Alternative Data allows to track not only those signals which already have strong financial impact (main signals), but also weak or emerging signals, with a bottom-up approach. The latter – if properly analyzed and weighed – provide valuable insights concerning developing financial themes not yet fully explicit, but with the right premises. These signals are hidden by the presence of other data with a higher visibility, therefore difficult to detect without an appropriate software specially developed to eliminate background noise (and fake news).
SOME FIGURES ABOUT ALTERNATIVE DATA
Percentage of funds that use or expect to use alternative data: 78% (source: 2017 EY Global HF and Investor Survey – up from 52% in 2016).
According to Alternativedata.org, the expected expenditure in 2019 for the purchase of Alternative Data will be over $1 billion (from $400 million in 2017) and will reach $1.7 billion in 2020.
The Tabb Group’s research has estimated that, in the US market alone, around $800 million will be spent in the area during the course of 2019.
According to Greenwich Associates, about 78% of hedge funds already use Alternative Data.
Number of alternative data providers: 409 (source: alternativedata.org).
The staff in asset management industry dedicated to alternative data has grown by 450% in the last 5 years (source: Morgan Stanley and Oliver Wyman).
Types of data used:
Artificial Intelligence to support investment decisions.
There is a huge opportunity to seize by analyzing and weighing data before it turns into publicly available news.