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Basic Statistics -Descriptive Measures

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Descriptive Measures

Panskura Banamali College

1

Please reset

to silent

mode all the

mobile phone

in this

session

Thank you

Learning Objectives

Measures of central tendency

Mean, median, mode, etc.

Quartile

Measure of variation

Range, interquartile range, variance and standard

deviation, coefficient of variation

Shape

Symmetric, skewed, using box-and-whisker plots

Coefficient of correlation

3

Summary Measures

Summary Measures

Mean Mode

Median Range Coefficient of

Variation

Variance

4

Mean (Arithmetic Mean)

Mean (arithmetic mean) of data values

Sample mean

n Sample Size

X X1 X 2

i

Xn

X i 1

n n

Population mean

N

Population Size

X i

X1 X 2 XN

i 1

N N 5

Mean (Arithmetic Mean) (continued)

tendency

Acts as Balance Point

Affected by extreme values (outliers)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 12 14

Mean = 5 Mean = 6

Example: Emperor Kangxi calculated the mean age of

6

Median

Robust measure of central tendency

Not affected by extreme values

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 12 14

Median = 5 Median = 5

In an ordered array, the median is the middle

number

If n or N is odd, the median is the middle number

If n or N is even, the median is the average of the

two middle numbers

7

Mode

A measure of central tendency

Value that occurs most often

Not affected by extreme values

Used for either numerical or categorical data

There may be no mode or several modes

Mode = 9 No Mode

0 1 2 3 4 5 6

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

8

Geometric Mean

Geometric Mean of a set of n numbers is

defined as the nth root of the product of

the n numbers and is used to average

percents, indexes, and relatives.

The formula is: (Xi > 0)

X G n X1 X 2 Xn

More directly measures the change over

more than one period

Geometric Mean Arithmetic Mean

9

Compound Formula

An alternative method to the geometric mean

for calculating average rate of change is to use

the compound formula:

A(1+r)n = F rnF 1

A

A = original amount, r = average rate of change

n = number of period, F = final amount

Geometric mean rate of return over time:

RG 1 R1 1 R2 1 Rn

1/ n

1

10

Example

An investment of $100,000 declined to $50,000

at the end of year one and rebounded to

$100,000 at the end of year two:

Average rate of return:

(50%) (100%)

X 25%

2

Geometric rate of return:

RG 1 50% 1 100%

1/ 2

1

0.50 2

1/ 2

1 11/ 2 1 0%

11

Midrange

Measure of Central Tendency

Middle of Smallest & Largest

Observation

X smallest X largest

Midrange

2

Affected easily by Extreme Values

12

Quartiles

Q1, the first quartile, is the value such that 25%

of the observations are smaller, corresponding

to (n+1)/4 ordered observation

Q2, the second quartile, is the median, 50% of

the observations are smaller, corresponding to

2(n+1)/4 = (n+1)/2 ordered observation

Q3, the third quartile, is the value such that 75%

of the observations are smaller, corresponding

to 3(n+1)/4 ordered observation

13

Thinking Challenge

Youre a financial analyst

for Prudential-Bache

Securities. You have

collected the following

closing stock prices of

new stock issues: 17, 16,

21, 18, 13, 16, 12, 11, 17.

Measure central tendency

and variation using

quartiles.

14

Quartiles

Split Ordered Data into 4 Quarters

25% 25% 25% 25%

Q1 Q2 Q3 i n 1

Position of ith Quartile Qi

4

Data in Ordered Array: 11 12 13 16 16 17 17 18 21

1 9 1 12 13

Position of Q1 2.5 Q1 12.5

4 2

Q2 = Median = 16, Q3 = 17.5

15

Measures of Variation

Variation

of Variation

Range Population

Population

Variance Standard

Sample Deviation

Variance Sample

Standard

Interquartile Range

Deviation

16

Range

Measure of variation

Difference between the largest and the

smallest observations:

Ignore the way in which data are distributed

Range = 12 - 7 = 5 Range = 12 - 7 = 5

7 8 9 10 11 12 7 8 9 10 11 12

17

Interquartile Range

Measure of variation

Also known as midspread

Spread in the middle 50%

Difference between the first and third

quartiles

Data in Ordered Array: 11 12 13 16 16 17 17 18 21

Not affected by extreme values

18

Variance

Important measure of variation

Shows variation about the mean

n

X X

Sample variance: 2

i

S 2 i 1

n 1

Population variance: N

X

2

i

2 i 1

N 19

Standard Deviation

Most important measure of variation

Shows variation about the mean

Has the same units as the original data

Sample standard deviation: n

X X

2

i

S i 1

n 1

Population standard deviation:

N

X

2

i

i 1

N 20

Comparing Standard Deviations

Data A Mean = 15.5

s = 3.338

11 12 13 14 15 16 17 18 19 20 21

11 12 13 14 15 16 17 18 19 20 21 s = .9258

Data C

Mean = 15.5

11 12 13 14 15 16 17 18 19 20 21 s = 4.57

21

Coefficient of Variation

Measure of Relative Dispersion

Always in %

Shows Variation Relative to Mean

Used to Compare 2 or More Groups

Formula (Sample Coefficient of Variation)

S

CV 100 %

X

22

Shape of a Distribution

Describes how data is distributed

Measures of shape

Mean > median: right-skewness

Mean median: left-skewness

Mean = median: symmetric

Left-Skewed Symmetric Right-Skewed

Mean < Median < Mode Mean = Median =Mode Mode < Median < Mean

23

Box-and-Whisker Plot

Graphical Display of Data Using 5-

Number Summary.

4 6 8 10 12

24

Distribution Shape and

Box-and-Whisker Plot

Refer to summary on Exhibit 3.4 (p.114), Fig. 3.13 (p.115)

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1 Q2Q3 Q1 Q2 Q3

25

Coefficient of Correlation

Measures the strength of the linear

relationship between two quantitative

variables

n

X i X Yi Y

r i 1

n n

X X Y Y

2 2

i i

i 1 i 1

26

Scatter Plots of Data with Various

Correlation Coefficients

Y Y Y

X X X

r = -1 r = -.6 r=0

Y Y

X X

r = .6 r=1 27

Features of

Correlation Coefficient

Unit free

Ranges between 1 and 1

The closer to 1, the stronger the negative

linear relationship

The closer to 1, the stronger the positive

linear relationship

The closer to 0, the weaker any linear

relationship 28

Comprehensive Application

Investment Returns on Stock, Bonds, and

Bills

Presenting data with summarized measures,

tables and graphs

Making professional presentation using

Excel

Data source: Stocks, Bonds, Bills and Inflation

2003 Yearbook: Market Results 1926-2002.

Ibbotson Associates, 2003

29

Asset Class Winners and Losers

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

RETURN Stocks Stocks T-Bills Stocks Stocks Stocks Stocks Bonds

LT Govt30 Day Small LT Govt Large LT Govt Small 30 Day Small Internatl 30 Day

Bonds T-Bills Stocks Bonds Stocks Bonds Stocks T-Bills Stocks Stocks T-Bills

Large Internatl Large LT Govt Large LT Govt Small LT GovtInternatl LT Govt Large Small

Stocks Stocks Stocks Bonds Stocks Bonds Stocks Bonds Stocks Bonds Stocks Stocks

Stocks Bonds Stocks Stocks T-Bills Stocks Stocks T-Bills Stocks

Internatl30 DayInternatl30 DayLT Govt30 DayLT Govt

RETURN T-Bills Stocks T-Bills Stocks T-Bills Stocks T-Bills Bonds T-Bills Bonds Stocks Stocks Bonds Stocks

This is for illustrative purposes only and not indicative of any investment.

Past performance is no guarantee of future results. 1/1/2001.

30

Copyright 2000 Ibbotson Associates, Inc.

Market Downturns and Recovery

1926-2001

Downturn Recovery

34 months -83.4% Sept. 1929 - June 1932 July 1932 - Jan. 1945

151 months

6 months -21.8% June 1946 - Nov. 1946 Dec. 1946 - Oct. 1949

35 months

7 months -10.2% Aug. 1956 - Feb. 1957 March 1957 - July 1957

5 months

5 months -15.0% Aug. 1957 - Dec. 1957 Jan. 1958 - July 1958

7 months

6 months -22.3% Jan. 1962 - June 1962 July 1962 - April 1963

10 months

8 months -15.6% Feb. 1966 - Sept. 1966 Oct. 1966 - March 1967

6 months

19 months -29.3% Dec. 1968 - June 1970 July 1970 - March 1971

9 months

21 months -42.6% Jan. 1973 - Sept. 1974 Oct. 1974 - June 1976

21 months

14 months -14.1% Jan. 1977 - Feb. 1978 March 1978 - July 1978

5 months

20 months -16.9% Dec. 1980 - July 1982 Aug. 1982 - Oct. 1982

3 months

3 months -29.5% Sept. 1987 - Nov. 1987 Dec. 1987 - May 1989

18 months

5 months -14.7% June 1990 - Oct. 1990 Nov. 1990 - Feb. 1991

4 months

2 months -15.4% July 1998 - Aug. 1998 Sept. 1998 - Nov. 1998

3 months

13 months -30.5% Sept. 2000 - Sep. 2001

31

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