The pros and cons of different data types

What is Alternative Data?

Alternative data refers to the data which wasn’t available until recently in the area of finance and investing, such as POS data, credit card data, geolocation and satellite images. It is in contrast to traditional data, for example, financial statements and economic statistics.

In this article, we will explain the following 3 points from the viewpoint of investors who are going to use alternative data.

1. what kind of data is alternative data?
2. what pros and cons does each alternative data have?
3. how is alternative data used in practice?

Overview, Pros and Cons

In this section, we will explain an overview, a period (how long the data is used, long-term/short-term), pros, cons and popular data providers of each data.

Web Traffic & App Usage

This is data that describes the usage of web sites and apps. They are collected mainly from web analytics tools and SDKs (software development kits) of apps. The following are examples of data that's available.

Web Sites

・The number times the user accessed the site
・The number of times the app is opened
・Time spent on the app

Apps

・The number of downloads
・The number of times the app is opened
・Time spent on the app
・Demographics of the users who use the app

By using these information, you can understand how the business is going (good/bad), or how popular the app is. As for web traffic, for example, you can see whether e-commerce and travel booking sites is going well by collecting the access count. When it comes to apps, you can understand how much a game app is played and how popular it is in a game app category.
As you see, you can use this data when you want to do short-term predictions of earnings (a couple of weeks to about 3 months ahead).

Overview	The number of users who access a certain web site, the number of downloads, demographic and usage stats You can understand how the business is going (good/bad), or how popular it is with the information obtained from analytics tools. Used when forecasting earnings of companies which run web sites and apps.
Pros	You can grasp some KPIs which financial statements don't contain such as the number of access and the number of downloads. Time lags are within a few days and thus the data is very timely.
Cons	You can't directly find out sales (because it’s not always the case that a lot of access and app downloads lead to high sales or profit)
Data Providers	Web Traffic SimilarWeb、comScore App AppAnnie、TalkingData、QuestMobile In Japan App Ape is famous.

Web Scraping

Web scraping data refers to the data that is collected automatically from online open information. Many different sites are scraped, such as comparison sites and job sites.
In comparison sites, you can track KPI from sales quantity and price with web scraping.
When used for job sites, it enables you to find out how active your target company’s recruitment is. Moreover, you can put employee satisfaction into a sentiment score.
Other than those, collecting lists of top selling products, you can analyze sales of each product.

Overview	Collected automatically from online open information and put together into a useful information or database for investing. Used mainly for comparison sites, job sites, SNS, company sites, and EC sites.
Pros	You can collect the information that has been regarded so far as qualititative in large amounts, and evaluate it quantitatively. Because the data makes it possible to scale up and automate desk research that analysts usually conduct, you can easily assess ROI.
Cons	Because a lot of web sites have banned web scraping, compliance needs to be taken into account Since the data is free and from open information, it is more to show originality compared to other data types, such as consumer transaction data. It is subject to a changes of the web sites’ layout.
Data Providers	YipitData, TH Data Capital, Thinknum

SNS/Sentiment

Utilizing comments and network information on SNS, you can quantitatively analyze qualititative information.
In other words, you can analyze the sentiment (positive/negative) of a certain service or brand, and the trend based on the number of comments. The data is often used to analyze BtoC companies which have a lot of customers such as those of fast food chains, food, beverage, EC industry.

Overview	Utilizing comments and network information, you can analyze a sentiment. Covering mainly consumer companies.
Pros	You can understand consumers’ interests before purchase and how branding of your target company or product is working. The data is especially effective when you want to see short-term reactions to some event such as a response to a new advertisement. Extensive coverage
Cons	Since the data is free and from open information, it is difficult to show originality compared to other types of data, for instance consumer transaction data.
Data Providers	Estimize, Dataminr, MarketPsych

Survey

This data is from surveys of, for instance, consumers’ brand preferences and consumer behavior.In detail, there are many different investigation methods, for example, panel surveys, which conduct a survey of the same questions on a regular basis, and FGI (Forcus Group Interview), which hold interviews to a few of representative users.
In Japan, some companies like Macromill and Cross Marketing have been providing survey data in the area of marketing research.
Though there are relatively few use cases in fincance industry, some long-term investors use them.

Overview	The data from surveys. Mainly about consumers’ brand preferences and consumer behavior.
Pros	You can set unique survey items and collect customized data. You can collect not only quantitative information but also qualititative information if needed.
Cons	Though it’s necessary to get users’ consent (opt-in) and ask a diverse range of people in the panel, all these factors depend on data providers that conduct a survey. It is hard to get a lot of panels, or panels with a lot of panels with a lot of users because consenting participants must be found Because regular surveys cost a lot, surveys are often taken at irregular intervals.
Data Providers	Prosper Insights & Analytics, J Capital Research, Civic Science

Consumer Transaction Data

Consumer Transaction Data refers to the following types.

・POS Data
・Credit Card Transaction Data
・Receipt Data (e-receipts on emails sent after online shopping and receipt photos uploaded by consumers)

By leveraging this consumption-related data, it is possible to understand sales and pricing of BtoC companies or industries' trend. When the panel size reaches a certain level, estimates become very accurate. This data is said to be the most used and insightful type of alternative data.

Nowcast is a leading company in this space and offers high quality analyses of companies, as well as macroeconomic insights with credit card data, POS data, and point card data. We are attracting attention from many fields (from investors to academic researchers) and our products and analyses are used in many areas.

Overview	By leveraging POS data, credit card data, and (e-)receipts, you can understand short-term trends of each product's sales and pricing, corporate earnings and industries' trend.
Pros	Most used, insightful and accurate data type of alternative data. It's easier to get a large-sized panel than surveys.
Cons	Coverage tends to be limited to B2C companies.
Data Providers	Nowcast offers various insights by leveraging the data from NikkeiPOS, TrueData, T-Point and JCB. Credit Card: Yodlee, Second Measure, Mastercard Recipt: Edison, Rakuten Intelligence, Superfly Intelligence

News Text

Utilizing newspaper or other media news information, you can analyze companies from vaious perspectives.

・Analysis on companies' important events (M&A and changes in members of board of directors)
・Extracting market themes (5G and DX [Digital Transformation])
・Analysis on business transaction information

Traditionally, news text from economic media (Bloomberg or Nikkei) have been the core of information resources for investment research. However, while researchers have long analyzed them qualititatively, they have recently started use them quantitatively with the use of of natural language processing technologies.

Overview	Utilizing newspaper or other media news information, you can understand upcoming events like M&A and extract market themes and business transaction information
Pros	Extensive coverage You can change qualititative information such as market evaluation and general attention into qualititaive information with the data. You can understand intraday market. Useful for not only stocks but also for FX and rates.
Cons	Since the data is free and from open information, it is difficult to show originality when compared other data sources like consumer transaction data.
Data Providers	Prattle, RavenPack

Geolocation

With geolocation data from cellphones’ wi-fi, Bluetooth and GPS, it is possible to analyze, for instance, consumption behavior in a certain area and logistics. You can use it for many industries (real estates (REIT), travel, transportation and so on) and for various situations (analyzing the economic impact of promotion or weather). Recently, it has shown to be useful when analyzing geographical infection status and how the economy has been going before and after the COVID-19 outbreak.

Overview	With geolocation data, you can analyze consumption behavior in a certain area and logistics. Applicable for many industries like real estate (REIT), travel, transportation and so on Applicable for many situations like when you analyze an economic impact of promotion or weather
Pros	Rapid Very granular geolocation data os available, such as districts smaller than cities or towns.
Cons	It costs a lot to maintain a high quality, and up to date POI and Geofence dataset. The reason why people are in a certain place changes over time, and it must be handled carefully
Data Providers	Japan: AirTrack (CyberAgent), NTTDocomo, KDDI Global: Advan, Placed, Foursquare

Satellite Photos

Images from satellites and drones enable you to understand how grain production is going and how much people travel, and then forecast the commodity market or judge whether retail, theme parks and so on is doing well or bad.

Overview	mages from satellites and drones enable you to understand how grain production is going and how much people travel, and then forecast the commodity market or judge whether retail, theme parks and so on is doing well or bad.
Pros	You can analyze natural resources like tanks of petroleum. You can analyze global supply chain (logistics and shipping).
Cons	A lot of time and money is required in order to produce satelite image based datasets
Data Providers	Orbital Insight, SpaceKnow

AIS (Shipping) Data

It is required by law to install a sensor called AIS (Automatic Identification System) on ships and it is possible to use AIS to analyze economic activities.
Generally, AIS data includes a speed, latitude, longitude, and ship type, and in addition to this AIS on tankers show what kind of loads they have.
Recently, a company that installs sensors on shipping containers, and one that tracks shipping and loading data of bulk carriers have entered the industry. That’s why AIS data has recently become the focus of attention.

Overview	With location of ships and information on loads, you can analyze logistics and shipping. Data providers specializing in containers’ or bulkers’ analysis have recently entered the market.
Pros	Extensive coverage (supply chain, commodity and macroeconomy)
Cons	It is often unable to check what contents of loads are.
Data Providers	exactEarth, Orbcomm, Orbital Insight Bulker: AXSMarine, Kpler Container: Traxens

PoI stands for Point of Interest, meaning specific point location, for instance “Disneyland. Geofence means a virtual boundary for a real geographic area. it is useful when you see people and things moving in or out the boundary.

[References]

AlternativeData.org. (n.d.). Get Started - Alternative Data. AlternativeData,org. Retrieved May 15, 2020, from https://alternativedata.org/alternative-data/

Eagle Alpha. (n.d.). Alternative Data Use Cases Edition 5.  Retrieved from
https://s3-eu-west-1.amazonaws.com/ea-pdf-items/Eagle-Alpha-Alternative-Data-Report-v5.pdf

Atsushi Nakata (Nov. 25, 2017), “Satellite photos show the economy,” 『Nikkei Business』, accessed May 15, 2020 <https://business.nikkei.com/atcl/report/15/061700004/111600233/>

Kazuya Manabe, Bunpei Matsukawa, Yuxiang Zhang, Takashi Nakano, and Minoru Satake (March 29, 2020), “Tokyo, a Frozen Big City, is...,” 『Nikkei』,accessed May 15, 2020
<https://www.nikkei.com/article/DGKKZO57364600X20C20A3EA2000/>

Nikkei(March 5, 2020) “Seniors tend to be very reluctant to leave the house”, Nomura Securities Reports (Market Overview)
<https://www.nikkei.com/article/DGXMZO56453240V00C20A3EN2000/>

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