Quartile

What Is a Quartile?

A quartile is one of three cut points that split a sorted set of numbers into four groups of equal size, each holding roughly a quarter of the values. The first quartile (Q1) sits at the 25th percentile, the second quartile (Q2) is the median, and the third quartile (Q3) sits at the 75th percentile. The word also describes the group of values between two cut points, so a fund in the "top quartile" sits in the highest quarter of a ranked list.

How Quartiles Are Calculated

Values are first sorted from lowest to highest. Q2 is the median, the middle value or the average of the two middle values. Q1 is the median of the lower half of the data, and Q3 is the median of the upper half. Software packages handle odd-numbered datasets differently, so two tools may report slightly different quartiles for the same data.

Consider this hypothetical set of nine returns, already sorted: 2, 4, 5, 7, 8, 10, 12, 15, 20. The median is 8. The lower half (2, 4, 5, 7) has a median of 4.5, which is Q1. The upper half (10, 12, 15, 20) has a median of 13.5, which is Q3. The interquartile range (Q3 minus Q1) is therefore 9.

Quartiles in Investing

Investors and analysts use quartiles to see how a result compares with a group. A fund reporting a return in the top quartile of its peer group performed better than roughly three-quarters of the funds in that group over the same period. Quartile rankings appear often in mutual fund and pension performance reports, where a manager's results are placed against a universe of similar portfolios.

Because quartiles show position rather than size, they can make differences look larger or smaller than they are. Two funds whose returns differ by a fraction of a percentage point may land in different quartiles, while funds far apart within the same quartile look identical in the ranking. The result also depends on which peer group is chosen. Quartiles are less affected by an extreme outlier than an average is, which is one reason they are widely used, but they still describe only past position within a chosen group and do not predict future results.