Quantitative analysis of stocks is done purely based on numbers. In this type of analysis, the price trend of the stock is analyzed based on historical data using complex mathematical calculations and statistical modeling techniques. The analysts who believe in quantitative analysis of stocks do not take into consideration the effectiveness of management, business or economy while doing this analysis.I strongly suggest you to visit read more to learn more about this.
The quantitative analysis of stock is very different from fundamental analysis of stocks. Fundamental analysis considers the business, growth prospects and effectiveness of management to determine the value of the stock while quantitative analysis discounts all these factors. The analyst who believe in this technique think that all the above mentioned factors are very subjective and do not portray the exact picture since everyone can interpret these numbers in a different manner.
The quantitative analysts make use of the newer technology through high speed computers to do all the number crunching using various sources as input data. The analysts who work on this technique are also referred to as quants since they understand only numbers. They use these numbers in complex formulae and based on these formulas, they come up with buy or sell recommendations for that particular stock. Some of the major factors which are considered while doing quantitative analysis are given in following paragraphs.
The first factor which is looked upon is the size of the company. The size is usually determined using the market capitalization of that company. On a broad basis, the companies are categorized as large cap, mid cap, small cap and micro cap based on the value of the company. A large cap company has market cap of $ 10 billion or more, while a micro cap company has a market cap of $250 or less. Other thing which is considered in this analysis is the momentum of the company. When a company is doing well for last couple of quarters, people believe that it is in good shape. Therefore, these companies do better in short term since everyone wants to buy that stock.
Another interesting factor which is used is called CANSLIM. C and A stand for current and annual earnings, N stands for new (new product or new market), S stands for small cap and large volumes, I for institutional ownership and M for market momentum. This is an interesting system which was initiated by a person called William J. O’Neil. This technique is actually a combination of technical analysis and quantitative analysis of stocks.