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Quantitative Analysis

Written By
Paul Tracy
Updated September 30, 2020

What is Quantitative Analysis?

Quantitative analysis is the use of math and statistical methods to evaluate investment or business opportunities and make decisions.

How does Quantitative Analysis work?

In portfolio management, quantitative analysis is often used to mathematically determine when to buy or sell securities. Let’s assume you are considering whether to purchase shares of XYZ Company. If you were to consider the company’s cost of capital percentage change in sales over time, or examine trends in net income as a percentage of sales or other ratios, you would be performing quantitative analysis.

Why does Quantitative Analysis matter?

Quantitative analysis is the foundation of a broad array of investment and financial decision-making methods.
 
However, it is not the only way to determine whether an investment is worthwhile. Many investors, Warren Buffett being one of the most notable, also perform qualitative analysis of companies and investments, whereby things such as the taste of the product, the look of the packaging, relationships with management, and public perception are taken into account.
 
Sound business judgment often involves incorporating both analytical methods, although there is considerable controversy about how much weight each method should receive when making particular business or investment decisions.

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