Using Alternative Data to Improve Business Outcomes

Alternative data such as foot traffic and satellite imagery is critical for building accurate models and generating objective, transparent and real-time insights

According to a report by AIMA (The Alternative Investment Management Association), the adoption of alternative data for deriving market insights continues to gain momentum. A recent survey revealed that about fifty percent of all investment firms already leverage alternative data, and the adoption is likely to grow faster. Another survey found that about 34% of hedge fund managers are currently investing in alternative data. It appears that the traditional investment process is on the cusp of change. Let’s dig into alternative data, understand how it is changing the world of investment management, and explore if other industry segments can benefit from it?

Alternative data in Finance 

Deloitte defines alternative data as a subset of big data, often non-financial and unstructured, that can come from various sources such as social media, IoT data, and satellite imagery. Investment managers are increasingly looking at these non-traditional sources for deriving insights that can answer questions about potential investments.

Research suggests that location data, a category of alternative data, is changing how businesses operate. A recent BCG survey confirmed the growing importance of location data for Financial Services, Retail, Logistics, and Real Estate verticals. So why is alternative data so popular? 

The reason behind the rise of alternative data is that, unlike traditional finance data, the data is more real-time, unique, and has the potential to offer an information advantage over the market. And in the investment world, it is all about alpha (α) - measuring performance, separating signal from the noise, and seeing something hidden. Alternative data such as store foot traffic data, number of cars in the parking lot, or number of ships waiting at the port can give an accurate picture of what's happening on the ground. Analysts at hedge funds, investment, and private equity firms can measure risk, tweak the financial models based on these newly gained insights, and augment fundamental analysis. 

For example, RBC Capital Market’s Digital Intelligence Strategy Research product specializes in leveraging alternative data applications. Its mission is to use quantitative and statistical methods to extract insights from structured and unstructured macro datasets to unearth actionable investment ideas spurred by changes in societal behavior and real-time global events. According to Mike Tran, Managing Director of RBC Capital Markets, “Traditional analysis often results in a binary investment thesis, but RBC’s digital intelligence product attempts to thin slice such events to expose a wider-ranging path of first derivative actionable ideas that can be applicable across sectors and markets."

Applications 

Blending alternative data such as connected car data, ad tech, and satellite imagery with traditional data allows analytics teams to build hypotheses, extract insights and make better decisions. Unlike market projections or forecasts based on historical data, alternative data analysis can be more accurate, near-real-time, and reliable. Thus it gives an accurate picture of what's happening on the ground. Using the right set of tools, analysts can 

• Analyze foot traffic activity, commuter distance & demographics in any area of interest 
• Identify ideal commercial or industrial site locations 
• Monitor the progress of large construction projects 
• Visualize trends to show visitor household income as an indicator of rent growth 
• Identify underperforming properties based on parking patterns

Property managers can benefit from understanding the visitor makeup of any individual property by gathering information such as home location, work location, demographics, dwell time, cross-shopping, and revisit time of each visitor. Private equity acquisition teams can use the same techniques to understand which stores are performing/underperforming. The analysis can show which ones to shut down/keep open before an investment decision in an asset. And those interested in consumer Insights can find out if customers are loyal to a brand. Competitive insights based on location data can let them see how often they visit a competitor. And these are just a few examples of using alternative data for gathering site intelligence.

However, you will need an advanced analytics platform - scalable infrastructure capable of ingesting geospatial data, analytical capabilities, the right set of algorithms, and data partners to leverage alternative data. An end-to-end platform for geospatial analytics can take the complexities associated with alternative data.

Introducing Site Intelligence

McKinsey's research highlights that few organizations take full advantage of data generated outside their walls. External data can help companies create value in strategic analysis, operations and forecasting, risk management, and more. However, using external data and alternative data comes with many challenges. Orbital Insight’s Site Intelligence solution is designed to address these challenges and make it easy to source data and get near real-time insights.

Site Intelligence aggregates multiple sources of data to provide objective, transparent and real-time insights. Powered by the Orbital Insight GO platform, the solution brings numerous data sources—such as anonymized cell phone data, vehicle GPS data, satellite imagery, and demographics data—and applies custom-built algorithms. Our state-of-the-art algorithms connect the dots between human behavior and physical locations. The customizable insights arm analysts, data scientists, and executives with critical knowledge related to the customer, competitor, and market trends. As Mike Tran, RBC Capital Markets, says, "Let's forget forecasting. Instead, it's all about nowcasting and understanding what's happening on the ground floor, in real-time.” Curious to learn more? Watch the video and request a demo to see how Site Intelligence can give you a competitive edge: