Financial statements are the bread and butter of traditional investment data. However, a growing number of investment analysts and hedge funds now combine these traditional data sources with alternative data.
Alternative data can provide new insights into companies, cryptocurrency projects, and other financial investments that give investors an edge in the market.
In this guide, we’ll explain everything investors need to know about alternative data: what it is, how to get it, how to use it, and more. Keep reading to find the best alternative data providers and start making better investment decisions today.
Who Uses Alternative Data?
Alternative data was popularized in the early 2000s by hedge funds, who were looking for a way to outperform traditional investment firms. At the time, the growth of the internet and increasing access to satellite imagery made the use of alternative data possible on a wide scale for the first time.
Fast-forward 20 years, and alternative data is extremely popular. It’s used by a wide variety of investors, including:
- Traditional investment firms
- Algorithmic traders (‘quants’)
- Investment analysts
- Private equity firms
- Retail investors
All of these different investors use alternative data to make decisions about day trading and investing. Notably, relatively few investment firms talk publicly about the types or sources of alternative data they use, out of fear of giving up any advantage they’ve found.
Many companies are also reported to use alternative data to monitor their own operations or those of competitors. Alternative data could be used in this way for quality control or estimating market share.
How Exactly is Alternative Data?
Alternative data is considered “alternative” because it’s distinct from the types of data that investors have used for decades.
Up until the early 2000s, the main source of information about a company was its financial statements. Companies also issued press releases, SEC filings, and transcripts from board or investor meetings. Analysts could make their own opinions based on these documents and industry trends, but most investors were working from the same traditional data sources.
Alternative data isn’t necessarily “weird” or hard to find. It’s just different from these traditional data sources.
Alternative data enables analysts to incorporate more types of information about a company. For example, analysts could use social media to see if customers are excited about a company, which could indicate it will perform better than its current financial statements suggest.
Types of Alternative Data
There are many different types of alternative data in use among investors today. Let’s take a look at some of the most popular categories.
Social media has generated a treasure trove of data for investors to evaluate companies, crypto projects, geopolitical risks, and more. With social media data, investors can examine:
- Whether customers are positive or negative about a company’s new product
- How frequently people online are discussing a company, product, or other news
- Whether companies are seeing an uptick in social mentions over time
Social media data is especially useful for short-term trading. Traders can, for example, predict whether a crypto token will take off based on how many users on crypto Twitter or Reddit are talking about it.
Smaller companies and projects that aren’t covered by mainstream financial news outlets may also provide important information for investors through social media.
Satellite imagery enables investors to get a birds-eye view of a company’s physical operations. They can see, for example, how many cars are parked in front of a company’s stores on any given day. They can also monitor the progress of construction or track large areas like croplands.
Satellite imagery requires careful processing and analysis. It’s not always easy, straightforward, or accurate to convert images of cars in a parking lot into sales data.
If a company has a mobile app, investors can use data about the app from the Apple App Store or Google Play to make investment decisions. This data can include the app’s number of downloads, usage statistics, and user reviews.
Credit & Debit Card Transactions
Credit and debit card companies typically sell anonymized data about their customers’ transactions. Investors can use this data to see where individuals are spending money, when, and how much.
Credit and debit card transaction data is frequently used to predict the performance of specific retail companies. However, it can also be used to monitor industry trends or consumer behavior more broadly.
Data about imports to or exports from a country can reveal important information about supply chains and economic growth. For example, if a country is importing a large number of semiconductors, that could suggest growth in its manufacturing industry.
Import/export data can be difficult to interpret since it’s not necessarily tied to a single company. It may be difficult to access in some countries.
Patent filings can reveal information about a new product a company may be working on. They’re especially useful as alternative data about tech and manufacturing companies.
Patent filings should be interpreted with caution. Companies frequently file patents that they don’t intend to act on immediately.
Many companies track individuals’ movements using their smartphones. Location tracking can be done via GPS, WiFi, or Bluetooth. This data is typically anonymized before it is made available as alternative data.
Geo-location data can reveal how many people are visiting a store, travel habits, and more. It’s most frequently used by investors to monitor the performance of retail stores.
Market research firms frequently survey consumers about products they use, their sentiment towards specific companies or industries, and more. These firms can then make their survey results available to investors for a price.
Surveys can provide high-quality data about what consumers care about and suggest upcoming market trends. However, survey quality and usefulness can vary widely. Some surveys include thousands of respondents, while others only gather responses from small subsets of a consumer group.
Web traffic data can be used similarly to app data. It provides information about how many people are visiting a company’s website, what pages or products they’re looking at, and how long they’re spending on the site. Web traffic data can also reveal the demographics of site visitors.
Web traffic data is most frequently used to monitor the performance of online retailers.
Weather data is commonly used by commodities traders. Weather significantly impacts crop yields, which can in turn send agricultural product prices up or down. Weather data includes historical data from sensors, short-range weather forecasts, and long-range weather models.
Note that these are just some examples of alternative data types. Investment analysts can use any form of data they deem useful to their analysis. There may also be emerging alternative datasets that have not yet been used on a wide scale for financial analysis.
Alternative Data Examples
Let’s take a closer look at 5 examples of how investors can use alternative data for finance to make investment decisions.
1. Monitoring retail store traffic with satellite and geo-location data
Investors interested in the health of a retail store chain can use satellite and geo-location data to monitor traffic into the store.
Satellite data will tell investors how many cars are parked in the store’s parking lot on any given day, and they can compare that to past quarters. They can cross-reference traffic estimates from the satellite images with geo-location data to determine precisely how many people were going into the store every day.
Based on this information, analysts can make a prediction about whether a company will report better-than-expected or worse-than-expected earnings during its next earnings report.
2. Using weather data to predict crop yields
Agricultural commodity traders can use long-term weather forecast models to predict future prices.
Say, for example, that a wheat trader uses a weather model that predicts a prolonged drought next summer across the midwest US and Canada. This is one of the largest wheat-producing regions in the world, so wheat supplies could be lower than expected if this drought materializes.
Using this alternative data, the trader can buy long-dated wheat futures that profit when the price of wheat rises.
3. Tracking social media sentiment to predict crypto token pumps
Social media sentiment is a commonly used form of alternative data for predicting cryptocurrency price movements.
As an example, say a crypto trader sees a lot of chatter on Twitter about a new crypto token called ‘ICOCoin.’ This token has been available on exchanges for a few weeks, but it hasn’t taken off. Suddenly, Twitter and Reddit are both filled with mentions of #ICOCoin and the sentiment is overwhelmingly positive.
That’s a good indicator that the token may be about to experience a fast-moving price pump. The trader can buy ICOCoin with a plan to capture some of the early upsides of the price movement.
4. Monitoring patent filings to discover new products
Investors who monitor patent filings can be among the first to discover new products and the companies that are building them.
For example, an investor might find a patent filing for a new type of smartphone with a hologram screen. The investor thinks this new product is going to be a hit, so they buy shares of the company that patented this device.
It might take several years for the company to bring this new smartphone to market. But when they do, that investor is ready to cash in on the shares they bought before the rest of the world knew about this transformational product.
5. Using surveys to identify winners in a competitive industry
Surveys can provide insights into consumer behavior that isn’t always easy for analysts to see.
Say an investor is studying 5 different clothing companies. To the investor, they all look similar, and none appear to have an edge.
But surveys show that consumers overwhelmingly prefer one of those clothing companies over the others. Maybe they like the company’s patterns, price point, or brand image. Whatever the reason, the investor can invest in that company knowing that they’re likely to beat out their competitors in the long run.
Can Alternative Data Help You Make Better Investment Decisions?
The purpose of alternative data is to help investors and analysts make better predictions and thus better investment decisions. Alternative data is designed to supplement traditional financial data, giving investors a more complete picture of a company or industry.
It’s important for investors to be careful when using alternative data. Alternative data can contradict traditional financial data or provide confusing results. Not all alternative data is high-quality data, and that can further muddle its use.
With proper caution and practice, however, investors can use alternative data to get insights that aren’t possible with traditional financial data sources.
Let’s explore some of the biggest benefits of alternative data.
Cross-reference Financial Data
When investors receive financial data from a company, they have to take it for the gospel. There’s typically no way to check that data or to break it down to a more granular level than what the company has offered.
Alternative data changes that. With alternative data, investors can peer into specific business units or geographic markets to find out how they’re performing. If a company is hemorrhaging money on R&D, for example, it might not be clear in financial statements. However, investors can use alternative data to find disparities between a company’s apparent revenue and its reported profits.
Investors can dig even deeper by correlating alternative data with a company’s financial metrics over time. When that correlation breaks down, it may be a sign that changes are happening inside a company that aren’t captured by financial statements.
Get a More Complete Picture of a Company
Alternative data also gives investors a more complete picture of a company. Financial statements might tell an investor about cash flow and assets, but it doesn’t necessarily provide information about which products are selling best, which stores are drawing the most customers, or whether customers are excited about a company’s products.
Alternative data can fill in these knowledge gaps and enable investors to better understand a company—both how the company operates and how customers view it.
That’s important when making investment decisions. The more investors know about a company, the better-positioned they are to decide whether to invest or not and at what price.
Compare Peer Companies on More Data Points
Financial alternative data can be especially useful for comparing companies within an industry. Typically, the same alternative datasets can be used to investigate these companies and analysts can directly compare metrics between them.
This is valuable because financial metrics aren’t always directly comparable. For example, a well-established company with a huge market cap is likely to generate more profit than a startup. But investors may be able to directly compare social media sentiment or app usage between the two companies.
This kind of peer analysis can help investors find winners within an industry, spot up-and-coming companies, and more.
Gain an Edge in the Market
Alternative data can also give traders and investors an edge in a competitive market. When everyone is working with the same information, they’re likely to come to the same conclusions. But when one investor has additional information from alternative data sources, they may be able to come to a different conclusion and get ahead of the market.
A small edge in financial markets can produce significant returns. Traders make their living winning just slightly more trades than they lose, and the edge alternative data provides can be the difference between a successful trader and an unsuccessful one.
Traditional Data vs. Alternative Data
Traditional data includes all of the types of data that financial analysts have looked at for decades. It typically includes:
- Corporate financial statements
- SEC filings
- Press releases
- Investor meeting minutes
- Earnings meeting transcripts
- Annual reports
This data can be enormously helpful in analyzing companies. For example, investors can build financial models using cash flow statements, income statements, and balance sheets. Many of the best stock picking services use traditional data to make recommendations.
Traditional data and alternative data work best when used in combination. Investors can correlate alternative data metrics with traditional data metrics or identify other patterns that can be informative. While it’s possible to use alternative data on its own to make investment decisions, financial analysis is still the starting point for most investors.
Beyond simply the kinds of datasets they cover, there are several important differences between traditional and alternative data sources that investors should be aware of.
Traditional sources are provided directly by companies for investors. While this data is trustworthy, investors may only see information that companies want them to see.
In contrast, alternative data may be entirely independent of a company. For example, retail stores don’t play a role in disseminating satellite photos or geolocation data to investors.
One difference to keep in mind when using traditional and alternative data is that they can be of vastly different quality. Traditional data sources are required by law to be accurate. Companies that issue inaccurate financial statements will be penalized harshly by regulators.
Alternative data, on the other hand, can be hard to interpret or even inaccurate. It’s up to alternative data providers to assemble high-quality datasets and to analysts to understand the limits of the data they’re assessing.
Most companies issue financial reports quarterly and may only hold investor meetings or issue press releases occasionally. That means that investors can go several months without getting much new insight into a company.
Many alternative data sources provide data in near real-time. For example, satellite photos can be updated every few hours. Geo-location data can be even more frequent. Social media data is instantaneous.
So, alternative data sources can give investors a much more up-to-date look at a company.
Alternative Data Providers
There are many different alternative data providers to choose from, each offering different types of datasets for investors. We’ll take a closer look at 5 of the top alternative data providers investors can use today.
1. AltIndex – Customizable Stock Alerts Based on Alternative Data
AltIndex is an alternative data provider for stocks and crypto that focuses on social media and web data.
The software tracks mentions of major companies on platforms like Reddit, Twitter, and 4chan, plus followers on Instagram, Facebook, and TikTok. A list view shows the top-mentioned stocks on each platform and investors can sort by industry to compare social media mentions among peer companies.
AltIndex is even better for investigating individual companies. Stock pages show everything from job listings to app downloads to customer review sentiment.
AltIndex also uses AI to issue a score on a scale of 0-100 for each stock. The score combines price action and thousands of alternative data points to indicate whether a stock price is likely to rise in the next 6 months. The score is paired with a 6-month price forecast, enabling investors to easily identify stocks that could outperform the market.
AltIndex compiles these predictions to recommend the top stocks to buy. Over the last 6 months, 83% of its recommended stocks earned returns for investors—a fairly impressive track record, although it’s worth noting that the market as a whole is up over the past 6 months as well.
Investors can sign up for stock alerts to get new recommendations delivered via text or email. They can also build custom portfolios to monitor stocks’ alternative data and conduct in-depth research.
AltIndex offers a free account with limited dashboard visits and up to 2 stock alerts. Paid plans start at $29 per month.
2. Data.ai – Detailed App Usage and Revenue Data
Data.ai is a powerful platform for digging into companies’ mobile apps.
Investors can investigate how many times an app has been downloaded, how much time users spend on it, and how much revenue is earned through in-app purchases. The platform also offers data about user retention, paid vs. organic downloads, and more.
Every mobile app is given a score from 0-100 to make it easy to compare apps across companies. The score is broken down into acquisition, engagement, monetization, and sentiment sub-rankings.
Data.ai displays all of this data in customizable dashboards that include excellent visualizations. Investors can compare peer companies using bubble plots, bar charts, and color-coded tables. The platform can also deliver data through its own mobile app, an API, or directly to Excel.
Data.ai offers a free plan with limited access to its app revenue data. Paid plans are available by quote only.
3. Transparent – Insights into Real Estate and Travel through Vacation Rental Data
Transparent provides data about rental properties in major cities around the world. This data can be very helpful for investors interested in buying real estate, evaluating the health of hotel chains, or monitoring companies in the travel industry like airlines.
For any city, Transparent shows the total number of rental properties, the occupancy rate, the annual revenue owners receive, and more. Transparent also displays properties on a map so investors can see where they’re located. Data comes from vacation rental platforms like Airbnb, VRBO, Booking.com, and more.
Property managers can dig deeper into the data to see the average rental price on specific days. It’s easy to filter properties by number of bedrooms, stay length, distance to attractions, and more.
Transparent offers a high-level overview of rental properties in any city for free, but detailed data requires a premium subscription. Pricing is by quote only.
4. YipitData – Industry-specific Metrics for 125 Companies
YipitData is an investment research firm that closely tracks more than 125 major companies. Unlike most research firms, YipitData goes beyond financial performance to dive into the metrics that really matter for companies in different industries.
For example, for Microsoft, YipitData shows Office365 subscriptions and user retention rates, Xbox sales, and more. For Amazon, YipitData breaks down revenue from e-commerce sales, Amazon Web Services, and other divisions within the company.
These highly specific metrics enable investors to better understand where a company is growing and where its strengths and weaknesses lie. The platform also makes it easy to compare related metrics across companies within the same industry, so investors can conduct more informed peer analysis.
YipitData primarily works with alternative data hedge funds, but individual investors can also use the platform. Pricing is by quote only.
5. Advan – Geo-location Data for 5,000 Companies
Advan is a location data platform that tracks foot traffic around more than 100 million buildings. Advan has done the hard work of associating every building with a company and tracks data for more than 5,000 companies.
Investors can quickly see how much traffic a company is receiving at any store location or across all of its stores. It’s a powerful tool for tracking the number of customers visiting a retailer, amusement park, restaurant chain, and more.
Advan’s location data comes from more than 1,000 different smartphone apps, so it captures a wide cross-section of the population. All of the data Advan uses is compliant with CCPA and GDPR requirements. Historical data is available going back to 2016, enabling investors to see how consumer patterns have changed over time.
Advan offers limited location data for free so investors can test out the platform. Pricing is by quote only.
How to Pick an Alternative Data Provider
There are a lot of alternative data providers to choose from and more are coming online every day. To get the most out of alternative data, it’s important for investors to choose a provider that can give them actionable, high-quality data.
Let’s look at some of the key factors to consider when choosing an alternative data provider.
Alternative data providers often specialize in different types of datasets. For example, AltIndex focuses on social media data, while Transparent focuses on vacation rental data.
It’s important for investors to think about what type of alternative data they want to analyze a company. Some types of data, like satellite data, might make more sense for analyzing retail businesses than tech companies. Other types of data, like social media data, can be useful for analyzing companies in almost any industry.
Investors can also choose between specialized data providers and all-in-one data providers. All-in-one providers typically gather data from multiple specialized providers to put everything investors need in one place. However, they may not offer the same depth of information or analysis tools as specialized providers.
Data quality can vary widely across alternative data providers. Some providers only accept the highest-quality data so that investors can be sure of trusting it.
However, only seeing high-quality data can be limiting in some circumstances. Investors may benefit from seeing a higher volume of data with greater uncertainty or lower quality. Some data providers accept low-quality data so that investors can have more information and make their own decisions about what level of trust to ascribe to the data.
One of the key benefits of alternative data is that it’s typically available to investors in near real-time. However, that requires that data providers can update their datasets quickly.
Look for data providers that update their datasets on a daily basis or more frequently. Social media data should be available within minutes. Short-term traders may even need real-time social media data to stay ahead of the market.
If a data provider can’t offer data quickly, then investors could potentially lose the edge that alternative data gives them in fast-moving markets.
Many alternative data providers offer their data in a form that’s ready for analysis. That is, the data has been quality-controlled and formatted prior to being released to investors. This takes a lot of the work out of incorporating alternative data into an investor’s existing analysis process.
However, some providers offer raw data. Investors may need to create their own systems for processing this data and importing it into their existing analysis software. Raw data is typically cheaper, but investors will need more technical know-how to make use of it.
Reporting and Visualization Tools
Some financial alternative data providers only offer data. Investors must decide how to analyze and visualize that data using their own software platforms.
However, a growing number of alternative data providers now offer their own analysis platforms. These platforms include visualization tools such as bubble plots, comparison tables, and more. They can be very useful for analyzing alternative data quickly.
Ideally, a data provider will offer multiple options for using data. Investors can use an online visualization platform for routine analyses or export the data to Excel to conduct custom investigations.
The Future of Alternative Data
Alternative data has played a role in finance since the early 2000s, but the art and science of using alternative data to make investments has really come into its own in the past few years.
The Alternative Investment Management Association surveyed 100 hedge fund managers and found that 72% of them considered alternative data “very important or important” for the success of their funds.
In addition, according to Precedence Research, the market for alternative data has more than doubled in value from $2.9 billion in 2021 to almost $7 billion in 2023. By 2030, the alternative data market is expected to explode to $149 billion in value.
As the market for alternative data has grown, so too has the number of alternative data providers. There are now hundreds of brokers for geo-location data, web traffic analytics, and more that market their services specifically to investors. That’s in addition to many more companies that collect alternative data for non-financial use (such as satellite imagery companies).
Alternative data is only set to become more important over time. It’s estimated that every person in the US will generate 463 exabytes of data per day in 2025 and that data has the potential to help savvy investors make better investment decisions. The race is on to figure out what data matters, how to harvest it, and how to use it in financial settings.
Alternative data can be an incredibly powerful tool for investment decision-making when combined with traditional financial analysis. It gives investors deeper and more up-to-date insights into companies and enables them to gain an edge in a competitive market environment. While alternative data is already widely used, its importance is only expected to grow in the years ahead.
Investors who want to take advantage of alternative data to increase their returns can get started today using a data provider like AltIndex. AltIndex offers actionable, customizable stock alerts based on social media sentiment, web traffic, and more.s