How Capital Markets can Benefit from Alternative Data?

By CIO Applications| Monday, November 25, 2019

Alternative data enhances the chances of higher returns by enabling the fintech firms to access a wide array of non-financial data sets.

FREMONT, CA: Alternative data uses diverse data from non-financial and non-traditional sources to gain business insights and improve investment decisions. The introduction of alternative data is impacting various investment ventures such as hedge funds, mutual funds, and pension funds. The emergence of alternative data has also influenced digital investment space. It is crucial to understand the complex factors determining the digital transformation as it can offer several strategic opportunities to the investors. Proactive investment managers are already leveraging alternative data sources from a number of sources such as social media feeds, metadata from email, news, and other geospatial information to improve their investment strategies.

Investment managers are experiencing a broad perspective of the market with the use of alternative data. For instance, coupling the data gained from social media platforms such as twitter with the complex analytical tool is assisting the investors to achieve a higher return on investments. Investment firms are utilizing alternative data to develop a more quantitative strategy for their investment plans. The advancement in disruptive technologies such as machine learning (ML) is also facilitating the investment firms to utilize data from varied sources.

Machine learning

 

The alternative data were earlier inaccessible to the investment firms. However, the current advancements in analytics solutions can assist the firms in gathering and processing relevant data distributed across multiple websites and databases. Hedge funds are the other aspect of the capitals market that has benefitted largely from alternative data. Hedge funds managers need alternative data to track market demands, supply as well as shifts in inflation around the world. Alternative data is also helping the hedge fund managers with a competitive analysis that provides more metrics to the companies to compare their financial outcomes against their contemporaries.

Finally, data from different sources enable the investment sector adage of asset diversification. Alternative data can offer the key data inputs to the investment managers that are looking to diversify a company’s portfolio. Investment firms are also benefitting from the skills of data scientists to assess the vast alternative data sets and foster portfolio diversification.

Thus, alternative data offers an investment firm with an edge over other players. An early investment into technologies and solutions to collect, refine, and process alternative data will result in long-term benefits for the investment firms.

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