Alternative data in investing: Hedge Funds use JCPenny parking lot data to trade

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When JCPenney reported results for the second quarter, the news came as a surprise — for most investors.

To a small group though, word that the retailer was seeing better than expected traffic was no shock. These investors, mostly hedge funds, pay a firm called RS Metrics for intelligence on JCPenney's parking lots across America.

Using satellite images, RS Metrics could tell that traffic into the stores was rising in April and May, and its clients were able to get alerts on those increases in near real-time.

And, if they chose, they could trade on those: JCPenney's shares jumped more than 10% after the report, over two days in mid-August.

Welcome to the world of "alternative data," where obscure data sets can be turned into tradable information. It's a cottage industry of tech firms that have sprung up in recent years, processing information on everything from the weather to web searches and selling it for thousands of dollars to hedge funds looking for any advantage they can get.

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