Quantitative Analysis
Quantitative analysis is a branch of financial analysis that focuses on using data and mathematical techniques to inform investment decisions. Harry Markowitz pioneered modern quantitative analysis with his introduction of Modern Portfolio Theory in the early 1950s.
Guide to Quantitative Analysis
:max_bytes(150000):strip_icc()/AlphaandBetaforBeginnersV2-d2d633f861a24b079c05c9b2c03c753e.png)
:max_bytes(150000):strip_icc()/stocks-lrg-2-5bfc2b1d46e0fb0051bdcc6a.jpg)
:max_bytes(150000):strip_icc()/GettyImages-519706040-d628027e66514f7081a688999a74020d.jpg)
:max_bytes(150000):strip_icc()/stocks-lrg-4-5bfc2b1dc9e77c00517fbe69.jpg)
Frequently Asked Questions
-
What Is the Difference Between Alpha and Beta in Finance?Alpha measures how much an investment outperforms or underperforms a benchmark. Beta is a measurement of an investment’s volatility and is one measurement of an investment’s risk.Learn More Alpha vs. Beta: What's the Difference?
-
What's the Difference Between an Investment’s Sharpe Ratio and its Treynor Ratio?
Both ratios exist to try and quantify the risk-adjusted return of an investment. The primary difference between the two is that the Sharpe Ratio measures an investment’s performance against the risk-free rate of return, the Treynor ratio measures it versus equity markets more broadly.
-
How Do You Calculate an Investment’s Beta?
You calculate the beta of an investment by taking the covariance between the return of a specific investment and broader market return and then dividing that by the variance of broader market returns.
-
What Is a Good Sharpe Ratio?A Sharpe Ratio over 1 indicates that an investment has a higher risk-adjusted return than the risk-free rate of return. The higher it is over 1 is how much better a risk-adjusted rate of return it has.Learn More What Is a Good Sharpe Ratio?
Key Terms
- Capital Asset Pricing Model (CAPM)The Capital Asset Pricing Model (CAPM) is a mathematical model that seeks to illustrate a very simplified version of the relationship between risk and return on investments. Because of its simplicity, CAPM can’t precisely predict investment returns, but it can provide a good analytical baseline to understand capital markets.
- AlphaAlpha is a term used to refer to how much an investment outperforms the broader market. It is represented by the greek letter of the same name, α, in equations.
- BetaBeta is the term used to refer to the relative volatility of an investment versus that of the market as a whole. This can be used as a tool to measure the risk-adjusted return of the investment and is represented by the greek letter of the same name, β, in equations.
- Sharpe RatioThe Sharpe Ratio is a method for measuring the risk-adjusted return of an investment. It does this by comparing the investment to the risk-free rate of return over a certain time period.
- Modern Portfolio Theory (MPT)Invented by Harry Markowitz and first published in 1952, MPT is one of the first quantitative analysis frameworks. MPT was made to help an investor choose investments that will match their risk tolerance.
- Quantitative Analysis (QA)Quantitative analysis broadly refers to using mathematical models and measurements to understand various topics. In investing it refers more specifically to a method of investment analysis that focuses on using mathematical and statistical models.
- Fama and French Three Factor Model
The Fama and French Three Factor Model, often referred to as just the Fama and French Model, is an expanded version of the CAPM model. Instead of just looking at the systematic risk of a portfolio, it adds size and value premiums as additional variables to the model.
- Treynor Ratio
The Treynor Ratio is a method for measuring the risk-adjusted return of an investment. It does this by measuring an investment’s risk and return against that of the broader market.
:max_bytes(150000):strip_icc()/paperwork-4596472be17e44b691fc63ab4caa74a4.jpg)
What Is Alternative Data?
:max_bytes(150000):strip_icc()/Sharperatio-e93b773c49274c828f7508c79d4a18af.png)
Sharpe Ratio: Definition, Formula, and Examples
:max_bytes(150000):strip_icc()/BETA-FINAL-9a06ac0fc2d84589aded1475150869c2.jpg)
Beta: Definition, Calculation, and Explanation for Investors
:max_bytes(150000):strip_icc()/alpha_definition_v1-e2fc096b73fd4d15975d7406c84071cc.jpg)
Alpha: What It Means in Investing, With Examples
:max_bytes(150000):strip_icc()/Modern-Portfolio-V2-9a0e2a7c92764f0cb194615eaedcdd76.jpg)
Modern Portfolio Theory: What MPT Is and How Investors Use It
:max_bytes(150000):strip_icc()/blur-1853262_19201-9c37ff95cabd45b2b869ec41e8c88412.jpg)
Alpha vs. Beta: What's the Difference?
:max_bytes(150000):strip_icc()/investing12-5bfc2b8f46e0fb00517be087.jpg)
Fama and French Three Factor Model Definition: Formula and Interpretation
:max_bytes(150000):strip_icc()/GettyImages-1442720131-6c0eaaa9534d49749d389f3d2c4eb49d.jpg)
Understanding the Sharpe Ratio
:max_bytes(150000):strip_icc()/unleveredbeta.asp-final-5c7d121ad1ce4e45b8928b192797cb49.png)
Unlevered Beta: Definition, Formula, Example, and Calculation
:max_bytes(150000):strip_icc()/apt.asp-final-e1723d0571a1424bbd76d6c7651e7e44.png)
Arbitrage Pricing Theory (APT) Formula and How It's Used
:max_bytes(150000):strip_icc()/quantitativeanalysis.asp_FINAL-a648a28b51bf4c0db606d8d88e356ffb.png)
Quantitative Analysis (QA): What It Is and How It's Used in Finance
:max_bytes(150000):strip_icc()/shutterstock_67023106-5bfc2b9846e0fb005144dd87.jpg)
How Do You Calculate Beta in Excel?
:max_bytes(150000):strip_icc()/Sortinoratio_final-fde284faf27d43c2bb5269cb96cc8575.png)
Sortino Ratio: Definition, Formula, Calculation, and Example
:max_bytes(150000):strip_icc()/investing13-5bfc2b8f46e0fb0026016f4d.jpg)
Treynor Ratio: What It Is, What It Shows, Formula To Calculate It
:max_bytes(150000):strip_icc()/GettyImages-1497890714-cf9f2e6ff6e843a18f2d12960a33ab27.jpg)
What the Sharpe Ratio Means for Investors
:max_bytes(150000):strip_icc()/beta03-5bfc3808c9e77c0026b85fd6.png)
How to Calculate Beta in Excel
:max_bytes(150000):strip_icc()/shutterstock_67023106-5bfc2b54c9e77c0026b4eee9.jpg)
CAPM vs. Arbitrage Pricing Theory: What's the Difference?
:max_bytes(150000):strip_icc()/GettyImages-1126388682-faaf2b46afd54db78f92b8ed7896de56.jpg)
CAPM Model: Advantages and Disadvantages
:max_bytes(150000):strip_icc()/155571944-5bfc2b9cc9e77c00263066f4.jpg)
What Is Quantitative Trading? Definition, Examples, and Profit
:max_bytes(150000):strip_icc()/thinkstockphotos-78525322-5bfc2b5746e0fb0026016371.jpg)
Modern Portfolio Theory: Why It's Still Hip
:max_bytes(150000):strip_icc()/plant-growing-from-coins-outside-the-glass-jar-on-blurred-green-natural-background-for-business-and-financial-growth-concept-921527422-20b9e08afda0421fa0aaa88b474d08b8.jpg)
Quant Fund: Definition, How They Work, Performance, and Risks
:max_bytes(150000):strip_icc()/GettyImages-1147331105-16b767fa2342443d9d2cf8279e507f19.jpg)
Trading High-Beta Stocks: Risk vs. Reward
:max_bytes(150000):strip_icc()/thinkstockphotos-496599823-5bfc34b6c9e77c002632183f.jpg)
Arbitrage Pricing Theory: It's Not Just Fancy Math
:max_bytes(150000):strip_icc()/GettyImages-699097517-b8f6702242014777a4254c4d718e7118.jpg)
Using Quantitative Investment Strategies
:max_bytes(150000):strip_icc()/GettyImages-932632502-a3902f7e57524840ab3c9ec081f71af0.jpg)
Zero-Beta Portfolio: Definition, Formula, Example
:max_bytes(150000):strip_icc()/shutterstock_253136563-5bfc2b98c9e77c00519aa7a8.jpg)
Sharpe Ratio vs. Treynor Ratio: What's the Difference?
:max_bytes(150000):strip_icc()/GettyImages-1018583996-3a98030f084f414c8f38b848f359f169.jpg)
How Do You Calculate the Sharpe Ratio in Excel?
:max_bytes(150000):strip_icc()/GettyImages-1311007681-56c88a99b6fc40c7a12bc51b45cf2830.jpg)
What's the Relationship Between R-Squared and Beta?
:max_bytes(150000):strip_icc()/abstract-view-of-a-skyscraper-643087328-3c3c9cc1c72a4eb595f285f5e80e6c49.jpg)
The Difference Between the Sharpe Ratio and the Sortino Ratio
:max_bytes(150000):strip_icc()/business_building_153697270-5bfc2b9846e0fb0083c07d69.jpg)
How Is Covariance Used in Portfolio Theory?
:max_bytes(150000):strip_icc()/midsection-businessmen-analyzing-charts-on-laptop-in-office-1128046391-f4eda1281ff34edfbe64a6b12454ca5d.jpg)
Correlation and Modern Portfolio Theory
:max_bytes(150000):strip_icc()/GettyImages-1128046391-116b4b2db7fe4b5bbc96a0c8d6fb2dd0.jpg)
How Beta Measures Systematic Risk
:max_bytes(150000):strip_icc()/shutterstock_112522391-5bfc2b9846e0fb0051bde2d3.jpg)
How Does Debt Affect a Company's Beta?
:max_bytes(150000):strip_icc()/investor-analyzing-stock-market-investments-with-financial-dashboard--business-intelligence--bi---and-key-performance-indicators--kpi--on-smartphone-and-computer-screens-956752490-5a4e3615b3e44864b4186257a5f5af27.jpg)
High Beta Index
:max_bytes(150000):strip_icc()/thinkstockphotos_493208894-5bfc2b9746e0fb0051bde2b8.jpg)
R-Squared vs. Beta: What's the Difference?
:max_bytes(150000):strip_icc()/financial-theory-lrg-4-5bfc2b22c9e77c002630523a.jpg)
A Deeper Look at Alpha
:max_bytes(150000):strip_icc()/93951379-5bfc388946e0fb0026050fa1.jpg)
Modern Portfolio Theory vs. Behavioral Finance
:max_bytes(150000):strip_icc()/wall_street_179681980-5bfc2b9746e0fb0083c07d29.jpg)
How Is Risk Aversion Measured in Modern Portfolio Theory (MPT)?
:max_bytes(150000):strip_icc()/investing14-5bfc2b8f46e0fb00265beb22.jpg)
Beta Risk: What it is, How it Works, Examples
:max_bytes(150000):strip_icc()/GettyImages-1237211992-ade540649c8b4076be65d084b439a3cd.jpg)
How to Apply Modern Portfolio Theory (MPT)
:max_bytes(150000):strip_icc()/GettyImages-11707409691-57a69e39b23448f8b091d8c355b9d0ad.jpg)
Post-Modern Portfolio Theory (PMPT): What it is, How it Works
:max_bytes(150000):strip_icc()/close-up-of-man-hand-analyzing-stock-market-chart-1023021802-605f9d82098b4aee871b66eb7725d658.jpg)
Portable Alpha: What it Means, How it Works
What is the difference between the Sharpe ratio and alpha?
:max_bytes(150000):strip_icc()/activetrading10-5bfc2b9c46e0fb0083c07dfa.jpg)
Weighted Alpha: Meaning, Calculation, Inferences
:max_bytes(150000):strip_icc()/midsection-businessmen-analyzing-charts-on-laptop-in-office-1128046391-50feb7b50eba4100b45df2cdd9c17faf.jpg)
Alpha Generator: Meaning, International Investments, Examples
:max_bytes(150000):strip_icc()/efficientfrontier_final-a7219a2140a446ab814daf2c8279d429.jpg)
Markowitz Efficient Set: Meaning, Implementation, Diversification
:max_bytes(150000):strip_icc()/bonds-lrg-2-5bfc2b24c9e77c00519a93b5.jpg)
How the Sharpe Ratio Can Oversimplify Risk
:max_bytes(150000):strip_icc()/beta-5bfc380846e0fb00265f4d17.jpg)
Calculating Beta in Excel: Portfolio Math For The Average Investor
International Beta: Meaning, Formula, FAQs