Alternative web data for global markets

Since 2016, ExtractAlpha's clients have gained insights on the online demand for U.S. companies' brands and products using a unique alternative data product, the Digital Revenue Signal (DRS). Today we are pleased to announce that DRS's coverage has expanded to cover 8,000+ global equities each day - both B2B and B2C companies, in both developed and emerging markets, including China A Shares.

This is the result of many months of data collection, analysis, and research by ExtractAlpha and our data partners alpha-DNA, involving collecting new global data sources and taking into account differing search, site, social, and app usage patterns in different countries as well as variation in financial reporting frequency and different drivers for corporate revenue growth in different markets.

Predicting revenue surprises with alt data

Underpinning DRS is the idea that growth in digital demand can forecast a company's top line success - and that conventional sources of corporate information such as consensus sales forecasts do not reflect this information. Therefore, an accurate metric of digital demand should predict revenue surprises.

In fact that is exactly what we see across global markets:

In the above chart, we measure the percent of companies in each DRS bucket, from low to high, which experienced subsequent revenue surprises between 2015 and 2019. Every line goes from the bottom left to the top right - meaning that higher-ranked DRS stocks tend to beat their revenue numbers and low-ranked stocks tend to miss, just as we see every quarter in the US. In our backtests, this pattern has been there for every year we've examined.

Building profitable portfolios with alternative data

The next natural question is whether we can use these buckets to create profitable portfolios. We do this by simply building long-short (dollar neutral) portfolios, equally weighted and rebalanced daily, within a liquid universe in each non-US region. Here's Canada for starters:

And Developed European markets:

And Developed APAC markets:

And Emerging APAC markets, which are dominated by China A-Shares:

In every region, and in most countries and years we examined, there was outperformance, with the long-short portfolios generating Sharpe ratios (before costs) of between 1.0 and 2.5. Results were strongest in the European markets and in China. The latter is great news for the growing ranks of investors into China A-Shares, who are actively looking for unique and reliable sources of alpha in this exciting market.

It's clear from these results that an accurate and timely measure of consumer demand, modeled from a diverse global set of alternative data sources, can drive portfolio returns.

Reach out to us via LinkedIn or at [email protected] to learn more. We've got a white paper as well as historical data for backtesting.