Quantitative and Qualitative Analysis: What Are the Main Differences?
Trading or investing might be a game for many people, yet it is not a game where sheer luck can win. It requires hardworks and deep research to attract that kind of luck in the financial market. Bare hands can do anything but the bare essentials of analysis can!
Quantitative and qualitative analysis are two genres that many traders and investors lay eyes on. Yet, some people still get confused about these kinds of analysis and what they can do for their trades. This blog unfolds the main differences between quantitative and qualitative analysis, and frequently asked questions about these topics.
What is Quantitative Analysis?
Quantitative analysis is the technique of using mathematical and statistical modeling, measurement, and research to draw insights into market trends. Instead of talking about assumptions, quantitative analysts show reality through numerical values. As a result, this kind of analysis is useful and popular in measurement, performance evaluation, valuation of a financial instrument, real-world event forecasting, etc.
It implies that quantitative analysis is like a set of tools for the examination and analysis of past, present, and expected future events. It prefers numeric values or quantifiable information so financial analysis, analytical chemistry, organized sports, etc. favor quantitative analysis. Those who worship quantitative analysis are called “quants” or “quant jockeys”.
Specifically in the industry of financial services, people use quantitative analysis to analyze investment opportunities to point to the right timing of purchasing or selling securities. The key financial ratios that quantitative analysis uses include the price-earnings ratio (P/E), earnings per share (EPS), the process of making investment decisions, etc. The range of quantitative analysis is wide from the examination of simple statistical data to complicated calculations like cash flow or options pricing.
What is Qualitative Analysis?
Qualitative analysis keeps track of the company’s values or prospects of non-quantifiable information. They can be management expertise, the strength of research and development, industry cycles, and labor relations.
The aspects that qualitative analysis takes under control include intangible, inexact concerns belonging to the social and experiential realm like the association with a brand, management trustworthiness, customer satisfaction, cultural shifts, etc.
Due to non-qualifiable information, it is sometimes challenging to gather data for qualitative analysis. Of course, CEOs do not sit down with retail investors to discuss the financial aspects of corporate. It takes time and effort but takes us nowhere near efficiency.
Warren Buffett is the master of using the information and insights from qualitative analysis to make bold yet profitable decisions. However, he is Warren Buffett who can get people to offer their time and information. We cannot hold on to one-and-only factors like this but diversify our sources. Besides interpersonal connections, you can sift through news reports and companies’ filings to deep dive into a sense of managers’ records, strategies, etc.
Besides, you can access information for qualitative analysis through interviews, panel groups, archival work, document analysis, etc. It is often carefully read and thematically coded for the identification of themes, patterns, and trends.
Quantitative Analysis vs. Qualitative Analysis: The Main Differences
First and foremost, the basic different point between quantitative and qualitative analysis is the quantifiability of information or database in these kinds of analyses. While quantitative analysis focuses on numerical values, qualitative analysis highlights more abstract information such as reputation or employee morale.
With more deep dives, you can see both qualitative and quantitative analysis paint a big picture of a company’s performance. Thus, you can make effective decisions about whether you should invest in a company and its stocks or not.
Qualitative analysis is like a useful evaluation tool and qualitative analysis puts stress on meanings such as sensitivity and context. Qualitative analysis can help you answer why and how a company will keep growing or is prone to collapse.
FAQs
What Is the Process of Qualitative Analysis?
There is not one standard process, yet the process we share below is a popular one that most researchers and analysts use.
- Identify your objective and goals.
- Trace and combine qualitative data.
- Break down the data to generate initial topic codes.
- Determine patterns or themes in the codes.
- Revise codes according to the initial analysis.
- Keep the journals of your writing.
Which Methods Do Qualitative Analysts Use?
People use various approaches to draw insights into concepts and underlying performances of a company. Common methods include interviews, narratives, focus groups, document/archival analysis, etc.
What Is Quantitative Trading?
Quantitative trading includes trading strategies mostly driven by quantitative analysis. It means mathematical computations and number crunching takes the main charge to identify trading opportunities. Price and volume are common data inputs for quantitative analysis to build a solid mathematical model.
Financial institutions and hedge funds mostly use quantitative trading for the transactions of hundreds of thousands of shares and other securities. Yet, there is a tendency that individual investors use quantitative trading.
Why Do Analysts Love Quant Trading?
Quant Trading, another name for quantitative trading, is a non-emotion-related process. As the main focus of quant trading is not abstract concepts but patterns and numbers. As a result, it becomes an effective discipline for the decisions of buying or selling.
Besides, it saves a lot of cost through strategies and investments. As computers take charge of quant analysis with numeric and specific values for practical insights. There are fewer probabilities of errors by human beings, generating insights into the computer’s performance.
How Can a Person Become a Quant?
It is essential for a want-to-be quant trader to have interests and abilities in all mathematical things. You can get the bonus when having a bachelor’s degree in math, a master’s degree in financial engineering or quantitative financial modeling, or an MBA. Besides, you should familiar yourself with and build years of experience in data mining, research methods, statistical analysis, and automated systems of trading.
Is Quantitative Trading Similar to Algorithmic Trading?
Yes and No. Both quantitative trading and algorithmic trading depend on mathematical calculations and analysis to draw insights into market trends for strategy development. Yet, while quantitative trading uses partly the computer works and partly human-related managment, algorithmic trading mostly lets computers take in charge. In other words, algorithmic trading automates even the process of trading decisions and executions based on algorithms!
Should I Learn Quantitative Trading Through Free Courses?
No, unfortunately. Most successful quant traders invest their money, time, and effort in formal education by reputed financial organizations or universities. Besides, they also throw themselves into the first-hand experiences in the field of quant trading. Self-research and self-study also play an important role in the success of a quant traders. However, you can search free courses of quant trading or related subjects such as industry credentialing, technical analysis, quantitative analysis, etc. through reliable sources!
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