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Basic Statistics: Numerical

Descriptive Measures

Dr. Tapan Kr. Dutta


Panskura Banamali College
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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
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Summary Measures
Summary Measures

Central Tendency Quartile Variation

Mean Mode
Median Range Coefficient of
Variation
Variance

Geometric Mean Standard Deviation


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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)

The most common measure of central


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
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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
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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

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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
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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
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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%
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Midrange
Measure of Central Tendency
Middle of Smallest & Largest
Observation
X smallest X largest
Midrange
2
Affected easily by Extreme Values

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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
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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.
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Quartiles
Split Ordered Data into 4 Quarters
25% 25% 25% 25%

Q1 Q2 Q3 i n 1
Position of ith Quartile Qi
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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
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Measures of Variation
Variation

Variance Standard Deviation Coefficient


of Variation
Range Population
Population
Variance Standard
Sample Deviation
Variance Sample
Standard
Interquartile Range
Deviation
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Range
Measure of variation
Difference between the largest and the
smallest observations:

Range X Largest X Smallest


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
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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

Interquartile Range Q3 Q1 17.5 12.5 5


Not affected by extreme values
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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

Data B Mean = 15.5


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
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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
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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

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Box-and-Whisker Plot
Graphical Display of Data Using 5-
Number Summary.

Xsmallest Q1 Median Q3 Xlargest

4 6 8 10 12
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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

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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
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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
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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
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Asset Class Winners and Losers
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

HIGHEST Internatl Large 30 Day Small Internatl Large Small LT Govt


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

Small LT Govt Small Internatl30 Day Large Internatl 30 Day Large


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

LOWEST 30 Day Small 30 Day Internatl Small LT GovtInternatl


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.
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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

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