Visualisation analytics and the new portfolio


The concept of data visualisation may seem like the ‘buzz’ trend right now but there is good reason why so many are latching on to this technique, not just in finance but across every industry.

 

In June of this year the BBC reported how data visualisation methods are set to change the future of healthcare around the globe, while in London, visualisation techniques have been used to map everything from government initiatives to city cycle journeys. And on Ted, Hans Rosling shows how visualisation can be used to dispel common myths about third world countries.

 

What this proves is that data is not only being harnessed in more intelligent ways but that governments and corporations are becoming increasingly open about how they share such data.

 

In a world of information overload, the ability to analyse data and present it in a visual way has enormous benefits, not least the ability to see much more quickly the answers to complex problems.

 

Clearly, finance is one area where visualisation processes can be utilised to a massive extent, since the industry is built on numbers.

Those numbers are constantly changing and evolving and being able to control the message that those figures send out is of critical importance.

 

Economic data sets, optimisation results, risk management profiles – these are all powerful applications that can render superior results if used in the right way.

 

The human eye – the fastest transmitter

 

To move away from the hype and understand why data visualisation really can provide the necessary tools to develop your business it is interesting to understand why these methods work so well in the first place and the answer comes very much down to our own biology.

 

Indeed, humans have evolved brains that function extremely well in visual analysis. Compared to our ears for example, our eyes are much more sensitive, and the optic nerve is able to transmit information through to the brain at a rate of 9mb/sec. And it is in the brain, that this data is processed, where our sophisticated minds are able to detect shapes, find edges and match patterns.

 

The result is that when we are presented with visual representations rather than random series of numbers, we are able to process the information much more quickly and much more effectively.

 

Data, the lynchpin of finance

 

In the finance world, data visualisation is an ever evolving process and one that can add real value if done right.

 

Financial data is multidimensional in structure, often abstract, and it is inherently large. That means it is notoriously difficult to manage and expensive to process. It consists of time series data and volume and there is often hidden information in financial data that must be prized out with good analytics.

The chief way this is done is through charts and tables but there are so many new ways to present data now.

 

Market maps, both tree maps and heat maps, are perfect guides when looking at risk and finding the optimal allocation ratios for a portfolio. They are also excellent at providing overviews of sectors, industries or the stock market.

Spie graphs allow data to be seen with several dimensions. Not flat, but closer to how the data exists in real life. And dashboards allow observations to be managed more coherently.

 

Indeed, the multidimensional aspect of data visualisation can not be stressed enough and we now have ways to manipulate data in real time, building multi level charts and diagrams that move and respond to the inputs that we give it.

 

Having access to these tools, having them at your fingertips, means that you can see at a glance what your risk is, where your sweet spot could be and find answers to what the market is telling you.

 

The power of stories, when visualisation excels

 

At the heart of effective data visualisation though, is communication, and for any diagram, animation or model to be considered effective it needs to do one thing – tell a story.

 

Stories are what good visualisation is all about. A good model should not need any narration or pre-written guideline or sidenote. The story should exist within the data itself, the way it moves in time and how it communicates its message on the flow.

 

This is something portfolio analytics company StatPro recognised long before the current trend for infographics and flow charts – many of which communicate little. Indeed, many infographics seem to exist simply as a means for designers to show off their creative skills.

 

However, the models that StatPro use to present their data constitute what good data visualisation should be. Clean, simple applications that add real value and efficiency to your investment processes. These are not simply bought indicators or commonly found portfolio monitors, these are custom built solutions that provide serious tools for visualising data.

 

It is the seriousness of these tools that allow so many solutions to be drawn from the data that is available. Solutions that include the analysis of portfolio performance, its attribution, contribution, allocation and risk. Solutions that have been designed to provide seamless reporting with third party applications such as Excel and other analytical software.

 

With the data at hand and readily available on screen at a moment’s notice, trends can be identified, profitable opportunities can be more easily found and financial assets can be assessed. Risk can be evaluated not only on daily basis but using ‘what if’ analysis – to show risk as it is now and what could happen to it in the future. All presented in a way that is simple and easy to get to grips with.

 

The tools needed to control your portfolio are there and they are ready like never before.