How Can I Apply Anova To My Investments?

So, you graduated from college and now you want to do something with all of that SPSS knowledge; maybe you are wondering, "How can I apply ANOVA to my investments and make money?" Traditionally, ANOVA (short for Analysis of Variance) is not used in investing because it does not help you predict the success of a given stock. Regardless, you can still apply ANOVA to your investments in a less direct way. Learn about how to apply ANOVA to your investments below.

To learn how to apply ANOVA to your investments, you will need:

  • Twenty minutes
  • Statistical software (such as SAS, Strata or SPSS)
  • Basic computer knowledge
  1. Determine your research question. Traditionally, the ANOVA model is used when you have two or more independent variables. Because you can't take the average of three different groups, the ANOVA model allows you to compare the variance of the groups. For example, if you want to apply the ANOVA model to your investments, you could select three different stocks to compare. For example, maybe you want to know if there is a difference in your relative gain or loss in your stocks over the course of six months.
  2. State your null and alternative hypothesis. Remember from statistics that your null hypothesis would mean that there is no difference between the three stocks. The null hypothesis would state that the changes in stock A, stock B and stock C are not significantly different. The alternative hypothesis would state that at least one stock is different.
  3. Enter your data into your statistical software. Of course, you could perform these calculations manually, but it is significantly less time-consuming to enter the data into SPSS. In order to understand your data, you should run both descriptive and inferential statistics. You don't need to perform a post-hoc test.
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