Quantitative Analysis

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What is 'Quantitative Analysis'

Quantitative analysis refers to economic, business or financial analysis that aims to understand or predict behavior or events through the use of mathematical measurements and calculations, statistical modeling and research. Quantitative analysts aim to represent a given reality in terms of a numerical value. Quantitative analysis is employed for a number of reasons, including measurement, performance evaluation or valuation of a financial instrument, and predicting real world events such as changes in a country's gross domestic product (GDP) growth rate.

BREAKING DOWN 'Quantitative Analysis'

In general terms, quantitative analysis can best be understood as simply a way of measuring or evaluating things through the examination of mathematical values of variables. The primary advantage of quantitative analysis is that it involves studying precise, definitive values that can easily be compared with each other, such as a company's year-over-year revenues or earnings. In the financial world, analysts who rely strictly on quantitative analysis are frequently referred to as "quants" or "quant jockeys."

Governments rely on quantitative analysis to make monetary and other economic policy decisions. Governments and central banks commonly track and evaluate statistical data such as GDP and employment figures.

Common uses of quantitative analysis in investing include the calculation and evaluation of key financial ratios such as the price-earnings ratio (P/E) or earnings per share (EPS). Quantitative analysis ranges from examination of simple statistical data such as revenue, to complex calculations such as discounted cash flow or option pricing.

Quantitative Vs. Qualitative Analysis

While quantitative analysis serves as a very useful evaluation tool by itself, it is often combined with the complementary research and evaluation tool of qualitative analysis. For example, it is easy for a company to use quantitative analysis to evaluate figures such as sales revenue, profit margins or return on assets (ROA), but the company may also wish to evaluate information that is not easily reducible to mathematical values, such as its brand reputation or internal employee morale.

In a combined qualitative and quantitative analysis project, a company, analyst or investor might wish to evaluate the strength of a particular product that a company manufactures and sells. The qualitative analysis part of the project can be undertaken using tools such as customer surveys that ask consumers for their opinions about the product. A quantitative analysis of the product can also be initiated through the examination of data regarding numbers of repeat customers, customer complaints and the number of warranty claims over a given period of time.

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