Alternative Data

What is Alternative Data?

Alternative data, or alt data, is the data found outside the typical structure for an investor. Data that investors use within that structure is called traditional data which includes information like earnings, guidance and dividends. Everything else is alternative data. This information is sometimes classified as big data, complex information that can’t be processed by typical software. Examples include social media posts about bitcoin data and prices, degree of political leanings, web usage for specific sites, and credit statements.

Alternative data is evaluated by:

  • Scarcity
  • Specification
  • History
  • Structure
  • Reporting

Alternative data is becoming an increasingly popular commodity. The primary users of alternative data are investors, specifically quantitative hedge funds, known as quants or quant funds. These quant funds are quickly looking to buy as much of this data as possible. Their hopes are to use this alt data to increase alpha and profitability. If this information can be processed, sorted, and quantified in a practical method, then it would be considered to be an indispensable tool for these quant funds.

Why is Alternative Data Important to Me?

Why does someone need to know why quant funds and other investors are buying up vast amounts alternative data? A typical individual won’t find the information from alternative data sets useful, but it’s important to know where this information is coming from. Alternative data is data from consumers. Consumers willingly, but usually unknowingly, give up access to their privacy. This is done via mobile phone apps and web usage (think Facebook). Companies can gain access to this information and leverage it to increase profits. Consumers should be vigilant of this practice.
Alternative data is available through many different formats. One of the more popular applications to transfer datasets is API. For more information about APIs, please read our other blog posts here https://cloud.benzinga.com/2018/06/what-is-a-stock-api-and-market-data/.  More information regarding alternative datasets can be found at Benzinga’s data catalog at https://cloud.benzinga.com/alternativedata/.

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