Inside the Black Box: The Simple Truth About Quantitative Trading

8.2. TYPES OF DATA

There are basically two kinds of data: price data and fundamental data. Price data is actually not solely related to the prices of instruments; it includes other information got or derived from exchanges or transactions. Other examples of price data are the trading volumes for stocks or the time and size of each trade. Indeed, the entire "order book," which shows a continuous series of all bids and offers for a given instrument throughout the course of a day as well as the amounts of each, would be considered price-related data. Furthermore, we would place anything that can be derived from the levels of various indices (e.g., percent changes computed from the daily values of the S&P 500 index) in the price-related data category, even if the index itself is not a traded instrument.

There is a rather broad variety of fundamental data, which can make it difficult to categorize effectively. In a sense, fundamental data relate to anything besides prices. However, what all types of data have in common is that they are expected to hold some usefulness in helping to determine the price of an instrument in the future, or at least to describe the instrument in the present. Also, we can do a bit more to create a reasonable taxonomy of fundamental data. The most common kinds of fundamental data are financial health, financial performance, financial worth, and sentiment. For single stocks, for example, a company's balance sheet is mostly used to indicate the financial health ...