Not that many years ago, some hedge funds would send people to literally stand in front of big-box retail stores and count the number of people coming in and out, and on that basis make predictions about the retail chains themselves and the economy in general.
Alternative data now offers an opportunity to do the same thing at an entirely different scale and level of sophistication.
.. The more fundamental funds will use the data as an input into human-driven investment decisions. For example, they’ll try to predict the sales or churn of a specific company, with the overall gall of of outperforming sell side consensus. Or they’ll try to predict macro economic trends, for example through the observation of satellite images.
.. At the other end of the spectrum, the quantitative funds will take your data set, combine it with other alternative data sets and feed them into very sophisticated models. The growing trend is to completely or partially automate trading strategies on the basis of those models, fed by alternative data.
.. There are a few key characteristics that make your data more or less interesting to hedge funds:
- level of detail,
- history,
- breadth and
- rarity.