What Are the Different Types of Quantitative Investments?

Jim B.

There are many different types of quantitative investments, which are investments made based on statistical information and computer models rather than the personal preferences of investors. Some quantitative strategies are based on the price performances of both individual investment vehicles and entire markets. Other quantitative investments may emanate from computer analysis of financial information offered by the organizations which are issuing stocks or bonds to investors. In some cases, investors may turn over control entirely to a computer model which triggers automatic commands to buy or sell, thus removing any human feelings from the process.

Some quantitative investment strategies aren't as concerned with the financial data of companies as they are with the stock prices of those companies.
Some quantitative investment strategies aren't as concerned with the financial data of companies as they are with the stock prices of those companies.

It is common for investors to attempt to choose their investments on their own or based on the advice of trusted financial advisers. As computer technology and statistical analysis has become more advanced, more and more investors are relying on quantitative strategies to make investment choices. A computer can take vast amounts of financial data and arrange it in a way that provides an outlook on the future action of stocks, bonds, and the like. Investors should understand the types of quantitative investments available to them before proceeding.

One category of quantitative investments is focused on the institutions that issue stocks and bonds. Computer models can take the financial information from these companies and organizations, found on balance sheets and income reports, and formulate complicated financial ratios from that information. These ratios can be used to compare companies within a certain market to one another. They can also be used to come up with the intrinsic value of a specific company, which can indicate whether a company is undervalued or overpriced.

Another main group of quantitative investments is dedicated to the examination of price performance. With this type of investment, the financial information of a company offering a stock is irrelevant. Instead, the way the stock has performed in the past is used as an indicator of how it will perform in the future.

Other quantitative investments may be based on predictions made about a market as a whole. If, for example, a computer model locates signs that the stock market is about to plummet, it would send sell signals to investors for any stocks they might hold. Quantitative investing also allows investors to get involved in complicated strategies like derivatives. The computer model can make all of the choices based on any data it has collected. All the investor needs is the discipline to follow through on this information.

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