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Alternative Data: Using Analytics to Mine Complementary Data Sources
‘Alternative data’ has become very popular in the financial industry. Unrelated to ‘alternative facts‘, alternative data refers to complementary or support data which isn’t core to what’s being measured, but which can be mined for insights.
In the finance industry, for example, where a credit reporting agency tracks payment history for a loan, alternative facts may include payment history for other types of bills, like telecom and energy, income, and spending history. It’s being used commonly now for assessing loan credit risk and creating bond trading strategies.
A Greenwich Associates report found that “the amount spent in Alternative Data have been steadily increasing. More than half of all quantitative and fundamental investors surveyed recently are either considering or using alternative data as part of their workflow.”
Other common alternative data set types include Geo-location, Satellite imagery, weather, web scraping,and surveys.
Krishna Nathan, CIO of S&P Global, said that “some companies are starting to collect data known as alternative, non-traditional or orthogonal. While it is still early days for this new kind of data, CIOs should start to become familiar with the technologies now. Soon enough, alternative data will be table stakes… I am always thinking about how I can use alternative data sources in conjunction with our traditional data to provide our customers with something they cannot get elsewhere. How do I pull multiple sources of data together to give our customers something unique?”
