One might think of investing for various reasons.
Right from investing for a dream house, world tour, retirement etc, the “why” is personal to every investor, but the analysis of “how” can be challenging.
With literally thousands of investment avenues available in the market, it might need loads of homework and a bit of professional assistance to choose from the ocean.
All the schemes and offers seem attractive but the best one according to your financial parameters makes your choices difficult.
In this blog article, let’s discuss this choosing process in a much better way.
There are various parameters available to manage your portfolio.
Out of them the most notable ones are Fundamental analysis, Technical analysis and Quantitate analysis.
In the previous post, we have discussed Fundamental analysis and Technical analysis thoroughly.
In this blog article, you’ll get a better understanding of the third foundational method which has been in the investment practice for decades, Quantitate analysis.
What is Quantitative Analysis?
Quantitative analysis is the process of collecting and evaluating measurable and verifiable data such as revenues, market share, and wages in order to understand the behaviour and performance of a business.
There was a time in the past when business owners relied heavily on their experience and instinct when making decisions.
However, with data technology, quantitative analysis is now considered a better approach to making informed decisions.
A professional quantitative analyst’s task is to present a given hypothetical situation in terms of numerical values.
There is lots of number crunching!
Quantitative analysis aids in making predictions, assessing financial instruments and evaluating performance.
The quantitative analysis comes with a package of three main techniques of measuring data:
- regression analysis
- linear programming
- data mining.
Let us understand these Quantitative Analysis techniques one by one.
1. Regression Analysis
Regression analysis is a common universal technique, its application is not just limited to business owners but also to economists and statisticians.
It is studies based on the impact of one variable on another.
Let’s consider a realistic example, it helps determine how interest rates affect consumers’ behaviour regarding asset investment.
Regression analysis is used to establish the effect of education and work experience on employees’ annual earnings.
Business owners can use regression analysis to determine the impact of advertising expenses on business profits.
This would result in analysing the data and coming with a positive or negative correlation output.
2. Linear Programming
Shortage of resources is a regular phenomenon for companies.
In such situations, business owners find ways to allocate resources effectively.
Linear programming is one such method that determines how to deal with such an optimal solution.
It is also used to determine how a company can make optimal profits and reduce its operating costs, subject to a given set of constraints, such as labour.
3. Data Mining
This type of Quantitate analysis includes computer programming skills and statistical methods.
The popularity of data mining continues to grow in parallel with the increase in the quantity and size of available data sets.
This method helps evaluate mega sets of data to find patterns or correlations hidden within them.
Applications of Quantitative Analysis in the Business Sector
Very often business owners are forced to make decisions under conditions of uncertainty.
Through quantitative analysing techniques, they can evaluate and come up with the best decision for that uncertain situation filled with ambiguity, with minimized risk.
It provides a better understanding of information to enable them to make the best possible decisions possible.
Project Management is one such area where survival with quantitative analysis is considered unimaginable.
As mentioned earlier, quantitative methods help in allocating resources in the best way possible during times of shortage.
Scheduling projects are later based on these projections with available resources.
Quantitative analysis also helps individuals to make informed product-planning decisions.
Let’s consider there’s a company, which finds new production facility challenging.
In such scenarios, Quantitative analysis can be employed to assess different proposals for costs, timing, and location.
With effective product planning and scheduling, companies will be more able to meet their customers’ needs while maximizing their profits.
Thus, Happy company, happy consumers, swift planning!
Planning and Strategy is the key for any business to flourish.
Also, budget constraints play an important role.
Fixing a for the marketing department can be tricky, especially if its objectives are not set.
With the right quantitative method, marketers can easily set the required budget and allocate media purchases.
The decisions can be based on data obtained from marketing campaigns.
Even the accounting department relies on Quantitate analysis to a large extent.
Different quantitative styles are incorporated to generate profits.
Purchase and Inventory
One of the greatest but silent challenges that businesses face is being able to predict the demand for a product or service.
However, with quantitative techniques, companies can be guided on just how many materials they need to purchase, the level of inventory to maintain, and the costs they’re likely to incur when shipping and storing finished goods.
The other name for Quantitative analysis is utilizing mathematical and statistical techniques to assess the performance of a business.
There was a time when decision making was purely a ‘gut feeling’ followed by sleepless nights!
Managers and Business owners can now rely completely on numbers to predict trends, determine the allocation of resources, and manage projects.
Another interesting thing about Quantitative techniques is that it is used to evaluate investments.
In every department of an organization ‘Quantitative analysis’ play a vital role.
Hope you got a better understand of Quantitate analysis, but are you not sure which is best for your portfolio!?
In the next blog article let’s discuss and compare Fundamental analysis, Technical analysis and Quantitative analysis for a portfolio and investment view.
Until next time…