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Why are percentiles useful and what are they used for in quantitative strategies
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STRATxAI

June 2024 · 10 min read

Explaining percentiles and use cases

Research

In this post we discuss percentiles. Quick reminder, they are not the same as percentages!

  1. A percentage refers to a figure out of 100. Therefore 20%, refers to literally 20 out of 100. Factors that are naturally represented using percentages include dividend yield, gross margin, change in return-on-equity since last quarter and similar ones like that.
  2. A percentile is a measure of rank in relation to others but grouped on the 0 to 100 scale after this ranking.

Imagine you have 700 stocks and want to choose the top 25% based on certain factors. However, the data from your chosen factors all have various ways of being measured, some are measured by percentage such as dividend yield, others are more hard coded like price-to-earnings such as 9.5.

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