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What Are the Different Types of Quantitative Investment Strategies?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 03 May 2019
  • Copyright Protected:
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    Conjecture Corporation
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Quantitative investment strategies are strategies to help investors pick stocks and other interest-bearing properties based primarily on statistical data and predictions derived from computer models. There are many different types of strategies that can be catered to individuals' investment needs. Some quantitative investment strategies focus on the companies behind the stocks and the financial information they provide, while other strategies are more concerned with the past price data of securities in an attempt to predict future price movements. In addition, strategies may differ in the amount of rigidity with which the individuals adhere to a computer model's suggestions.

Many investors choose their investments based on personal criteria, such as past experiences with companies issuing stock or gut feelings about how stocks will perform in the future. By contrast, other investors prefer to stick to the hard numbers which surround their potential investments. These investors are likely to choose from the vast variety of quantitative investment strategies available to them.

Financial ratios are the basis for many quantitative investment strategies. These ratios are generally compiled from financial information found on a company's income reports or balance sheets. The ratios can be used to compare companies or even to uncover the intrinsic value of a particular company in relation to the market price of its stock. This information is useful in uncovering stocks that may be undervalued or overpriced.

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Other quantitative investment strategies aren't as concerned with the financial data of companies as they are with the stock prices of those companies. The idea behind such strategies is that the past price movements of stocks can be used to anticipate how those stocks will move in the future. These types of strategies are especially useful if there is a great deal of past price data on stocks. In addition, these methods can be used to predict price movements in broad segments of a market or of markets as a whole.

No matter what quantitative investment strategies are used, investors have the choice about how strictly they follow the recommendations made by statistical models. There are times when current events that affect entire markets can arise before computer models can react to them. In addition, individual companies may undergo changes in terms of executive personnel or other industry factors that may have significant impact on their value. For those reasons, investors may choose to use the quantitative output as more of a suggestion and make adjustments based on elements that the computer cannot anticipate.

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