Predictive Analytics

DEFINITION of 'Predictive Analytics'

The use of statistics and modeling to determine future performance based on current and historical data. Predictive analytics look at patterns in data to determine if those patterns are likely to emerge again, which allows businesses and investors to adjust where they use their resources in order to take advantage of possible future events.

BREAKING DOWN 'Predictive Analytics'

There are several types of predictive analytics methods available. Predictive models look at past data to determine the likelihood of certain future outcomes, while descriptive models look at past data to determine how a group may respond to a set of variables.

Predictive analytics is a decision making tool in a variety of industries. For example, insurance companies examine policy applicants to determine the likelihood of having to pay out for a future claim based on the current risk pool of similar policy holders, as well as past events that have resulted in payouts. Marketers look at how consumers have reacted to the overall economy when planning on a new campaign, and can use shifts in demographics to determine if the current mix of products will entice consumers to make a purchase.

Active traders look at a variety of metrics based on past events when deciding whether to buy or sell a security. Moving averages, bands and break points are based on historical data, and are used to forecast future price movements.

RELATED TERMS
  1. Financial Modeling

    The process by which a firm constructs a financial representation ...
  2. Unbiased Predictor

    The notion that the current market price of a physical commodity ...
  3. Predictive Market

    A speculative market that is based on speculations regarding ...
  4. Prediction Market

    A collection of people speculating on a variety of events - exchange ...
  5. Tight Monetary Policy

    A course of action undertaken by the Federal Reserve to constrict ...
  6. Laissez Faire

    An economic theory from the 18th century that is strongly opposed ...
Related Articles
  1. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  2. Bonds & Fixed Income

    Unpredictable Event Or Bad Investment?

    When investments head south, your 20/20 hindsight can show you who's at fault.
  3. Investing Basics

    Predicting Investment Losses

    How much you stand to lose on an investment and how long those losses will last can be gauged ahead of time.
  4. Options & Futures

    Using Index Futures To Predict The Future

    Want to know whether the stock market will open up or down? Check out the index futures.
  5. Forex Education

    Predict Inflation With The Producer Price Index

    Find out how the PPI can be used to gauge the overall health of the economy.
  6. Active Trading

    Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
  7. Investing Basics

    Financial Models You Can Create With Excel

    The relatively modest amount of time it takes to build these models can pay for itself by leading you to better investment decisions.
  8. Active Trading

    4 Ways To Predict Market Performance

    There is academic evidence supporting different market views. Learn how and why the market can be predicted.
  9. Active Trading

    Finding Success Where Indicators Fail

    Trade what you see: Follow the charts, buy breakouts and honor stops. We'll look at a case study to show you how.
  10. Trading Strategies

    Profit Without Predicting The Market

    Traders who try to predict the future can actually harm their trading options.
RELATED FAQS
  1. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  2. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  3. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  4. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  5. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  6. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center