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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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8. Financial Analysis
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10. Investment Analysis

Quantitative Trading
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Quantitative trading consists of trading strategies based on quantitative analysis,


which rely on mathematical computations and number crunching to identify
trading opportunities. As quantitative trading is generally used by financial
institutions and hedge funds, the transactions are usually large in size and may
involve the purchase and sale of hundreds of thousands of shares and other
securities. However, quantitative trading is becoming more commonly used by
individual investors.

BREAKING DOWN 'Quantitative Trading'


Price and volume are two of the more common data inputs used in quantitative
analysis as the main inputs to mathematical models.

Quantitative trading techniques include high-frequency trading, algorithmic


trading and statistical arbitrage. These techniques are rapid-fire and typically
have short-term investment horizons. Many quantitative traders are more familiar
with quantitative tools, such as moving averages and oscillators.

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