Is ‘Alternative Data’ becoming the new normal for investors?

VP at Datamir, Ed Oliver Alternative data is becoming the new normal for investors, with 79% of traders currently using if for investment decision making – that’s according to Dataminr’s ‘The New Data Paradigm for Traders’ report.

Social media is a prime example of an alternative data source, one which gives investors a competitive edge allowing them to capitalise on the insights.

But with a plethora of alternative data sources and the use of social media data, how can traders marry together data sources to find the right real-time insights that will set them apart from competitors?

With that in mind, Business Leader spoke with VP at Datamir Ed Oliver about the report and the sector as a whole.

Can you give me an overview of the company?

Dataminr is a real-time information discovery company that generates alerts on activity across multiple, publicly available sources, such as social media, blogs, information sensors and the dark web. Relied on 24/7 by thousands of clients in over 70 countries worldwide, it is providing individuals with insights and context on breaking events, giving them the opportunity to make more informed decisions.

As a company, Dataminr has pioneered a groundbreaking Artificial Intelligence and Machine Learning technology that identifies, classifies and determines the significance of real-time information, and delivers relevant alerts to clients across the Finance, Corporate Security, PR/Communications, News and the Public Sector.

How has the sector changed over the last few years?

We live in an always-on world, dominated by social media and driven by data. This means anyone with a smartphone can report real-time information to a global audience, breaking major news before anyone else. This is the biggest change the sector has seen in recent years.

However, the public information landscape does have its limitations; it’s difficult to pinpoint where or when relevant news will break, and targeted keyword searches or well-curated feeds can easily miss the mark. The key is the use of a trusted source that can push relevant information through a sea of online noise and provide early, reliable and differentiated insights.

What does the future hold for the company?

Looking to the future, Dataminr will continue to evolve with the opportunities that real-time information brings to our clients, whilst we continue to expand our global client footprint. We will continue exploring public data sets from multiple sources o discover breaking events across the world. Ultimately, we’d like to remain at the front line of real-time information awareness, ensuring that people have the knowledge they need to act with confidence.

How do you define alternative data, and why should traders be paying attention?

By definition, alternative data is any set of data that is outside of the traditional data stack for financial services. Traditional data is market data, pricing data, volume data for different asset classes, earnings reports, press releases, economic data that comes out on a scheduled basis, etc. Another way to think about traditional data is data that is effectively scheduled or is announced on a regular basis.

For traders, alternative data really adds an additional layer of increasingly critical information to their workflow, providing a new level of understanding of what’s going on in the market. Very often, alternative data can explain movements in the market. In other cases, alternative data can effectively give you a heads up before the market moves.

How can alternative data help traders stay ahead of the market?

There are a few ways, but broadly alt data allows traders to see a more complete picture. You’re not just seeing pricing data. You’re not just seeing information that’s being sent by official sources — via press releases, by corporations, by a government department releasing data — but you’re also seeing information coming from a variety of unique and differentiated sources.

Asymmetry of information creates advantage. The magic is in being able to connect the dots among unique pieces of information to identify the moments that matter, derive insight, and then make better decisions. Alternative data can inform a real-time trade or a strategy. Often traders will have a thought or a view in the market and will build a strategy based on that view. By leveraging alternative data, traders gain a new layer of information and can confirm or adjust strategies in real time, with the right tools.

Finally, alternative data can help traders mitigate risk and more fully understand the impact of events as they occur. For example, on February 14, 2018, South African President Jacob Zuma resigned when faced with a motion of no confidence in Parliament. The timeline of the events that ultimately lead to Zuma’s resignation began as early as February 7th when Dataminr updated clients to rumours around the pending resignation and then again when Zuma confirmed his resignation nearly seven days later.

What are the different types of alternative data sets? And what’s the value for each?

There are many. There’s social media. There are other types of web-based data, like blogs or even retail sites. There are information sensors — essentially the output of devices that detect and respond to some type of input from the physical environment. There is satellite information and credit card data. The range is pretty broad. The value depends on the use case. Not every type of alternative data set is right for every investor. And often, it’s the combination of data points that leads to great insights, and where the ability to truly differentiate trading strategies comes into play.

What are the current challenges for traders and firms when leveraging or incorporating alternative data into their existing processes?

I think the biggest challenge is that there’s so much data out there right now. It’s almost unlimited, and it’s hard for traders and firms to, first, capture it all and, second, gather insights in that massive sea of data. Creating some structure to these generally unstructured data sets is not always easy, and then once it’s structured you still have to make it useful and find what matters.

Another challenge is integrating this information into existing workflows. A particular data set may seem interesting or may seem valuable on the surface, but without the ability to incorporate that data into the existing workflow the value is more limited.

How are traders incorporating alternative data into their workflow?

It really depends on the type of data. Dataminr provides a tool that alerts our clients to information that they care about from within complex, unstructured data sets, by effectively providing a “tap on the shoulder.”

We do that via our web-based platform, real-time emails, pop-ups on your computer, as well as a mobile app. We offer a number of different ways so clients can pick the best delivery mechanism for themselves and to also make sure that they don’t miss information at critical times.

How have you seen the adoption of alternative data change in the past few years?

Three years ago, the conversation really centred around “what is alternative data”. Now people understand the variety of alt data sets, and the dialogue has shifted to how to use alt data effectively.

For example, recent research from EY showed that over three-quarters of hedge funds currently or expect to use non-traditional data to support investments. Furthermore, research from Greenwich Associates has shown that alternative data spending is expected to increase in 2018 for both hedge funds and asset managers, with 74% of hedge funds planning to boost their alt data spending in 2018.

Over the last few years, there have been a wave of large hedge funds hiring teams of data scientists and developers to find value in alt data. I think that’s really key right now. Firms are exploring how to use these data sets for alpha, for edge, for situational awareness and for risk mitigation.

Can you tell me about a time when alternative data sources broke news that directly affected markets before the media were able to pick up on it?

One of the best examples that we see is in the energy space. We’ve had a number of cases where a group of individuals saw a refinery, or some sort of gas installation, have a major disruption, like an explosion or fire.

They saw it, then they posted about it on Twitter, often with pictures or videos. A great example of this is the Husky Energy oil refinery explosion in April 2018. Roughly 20 people were injured after a tank exploded at the Superior, Wisconsin oil refinery. Dataminr first alerted clients to the blast via an eyewitness who shared a photo from on the ground.

These posts were surfaced by Dataminr and delivered to our clients ahead of major news, giving users a time advantage before it affected the markets. We also see a lot of macro stories being broken on social media. After Turkey President Recep Tayyip Erdogan appointed his son-in-law, Berat Albayrak, as chief of the country’s new treasury and finance ministry in July 2018, the Turkish lira fell nearly 4%.

Dataminr alerted clients to the event ahead of major news by surfacing a scoop by a local reporter. Social media and other public information platforms can be very powerful ways to broadcast an event.