Analysis Of Variances - ANOVA

DEFINITION of 'Analysis Of Variances - ANOVA'

An analysis of the variation between all of the variables used in an experiment. Analysis of variance is used in finance in several different ways, such as to forecasting the movements of security prices by first determining which factors influence stock fluctuations. This analysis can provide valuable insight into the behavior of a security or market index under various conditions.

BREAKING DOWN 'Analysis Of Variances - ANOVA'

This type of analysis attempts to break down the various underlying factors that determine the price of securities as well as market behavior. For example, it could possibly show how much of a security's rise or fall is due to changes in interest rates. A t-test and f-test is used to analyze the results of an analysis of variance test to determine which variables are of statistical significance.