Business Statistics

Descriptive Statistics

Descriptive Statistics

Business Statistics

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Descriptive Statistics

Mathematical Averages

Arithmetic mean Harmonic mean

• Simple Geometric mean
• Weighted

Averages’ Positions

Median Deciles
Quartiles Percentiles Mode

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Measures of Central Tendency

• Central tendency refers to the ”middle” value of data.

• Three types of measures:

• Mean

• Median

• Mode

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Definition (Mean)
• The mean (or arithmetic mean or average) is the most com-
mon measure of central tendency.
• The mean of a set of observations is the average of the
observations which provides a measure of central location
of the data.
• Mean is equal to the sum of all observations divided by the
number of observations in the set.
• For a sample of size n, the sample mean x̄ is
n
P
xi
i=1 x1 + x2 + ... + xn
x̄ = =
n n

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Mean (Contd...)
• For a population of size N, the population mean µ is
N
P
xi
i=1 x1 + x2 + ... + xN
µ= =
N N
• Applicable for interval and ratio data.
• Not applicable for nominal or ordinal data.
• Affected by each value in the data set, including extreme
values (also known as outliers).

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Example

1 2  3  4  5
Mean  3
5

1  2  3  4  10
Mean  4
5

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Definition (Weighted Mean)

• Considers the importance of each value.
• Weighted mean x̄w
n
P
(wi × xi )
i=1
x̄w = n ,
P
wi
i=1

where wi is the weight for observation i.

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Definition (Median)
• Median is an observation in the center of the dataset when
the data are arranged in ascending order.
• 50 % data lie above the median and 50 % data lie below it.

n+1
Median position = position in the ordered data.
2

Remark
n+1
is not the value of the median, only the position of the
2
median in the ordered data.

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Descriptive Statistics

Median (Contd...)
• Procedure to find the Median:

• Arrange the observations in an ascending ordered (smallest

to largest value) array.

• If there is an odd number of terms (observations), the me-

dian is the middle term of the ordered array.

• If there is an even number of terms, the median is the aver-

age of the middle two terms.

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Descriptive Statistics

Median (Contd...)
• Median is applicable for ordinal, interval, and ratio data.
• Not applicable for nominal data.
• Unaffected by extremely large and extremely small values.

Example

Median = 3

Median =3

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Definition (Mode)
• The most frequently occurring value in a data set.
• Applicable to all levels of data measurement (nominal, ordi-
nal, interval, and ratio).
• Not affected by extreme values.
• There may be no mode, single mode (uni-modal), two
modes (bi-modal) or several modes (multi-modal).

Example

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

Mode = 9

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Descriptive Statistics

Definition (Quartiles)
• Quartiles split the ranked data into four segments with an
equal number of values per segment.

• The first quartile, Q1, is the value for which 25% of the ob-
servations are smaller and 75% are larger.
• Q2 is same as the median (50% are smaller, 50% are
larger).
• Only 25% of the observations are greater than the third
quartile Q3.
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Descriptive Statistics

Quartiles (Contd...)
Procedure to find the quartiles
• Arrange the data set in ascending order array.
• First quartile position is Q1

n+1
Q1 =
4
• Second quartile position is Q2

n+1
Q2 = , median position
2
• Third quartile position is Q1

3(n + 1)
Q3 =
4
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Definition (Percentiles)
• Measures of central tendency that divide a group of data
into 100 parts.
• At least n% of the data lie below the nth percentile, and at
most (100 − n)th of the data lie above the nth percentile.

Example
90th percentile indicates that at least 90% of the data lie below
it, and at most 10% of the data lie above it.

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Descriptive Statistics

Percentiles (Cont...)

Procedure to find the percentiles

• Arrange the data set in ascending order array.
• Calculate the percentile location i:

P
i= (n)
100
• Determine the percentile’s location and its value.
• If i is a whole number, the percentile is the average of the
values at the i and (i+1) positions.
• If i is not a whole number, the percentile is at the (i+1) posi-
tion in the ordered array.

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Percentiles (Cont...)
• Applicable for ordinal, interval, and ratio data.
• Not applicable for nominal data.

Remark
• 25th percentile = Q1 (first quartile)
• 50th percentile = median = Q2 (second quartile)
• 75th percentile = Q3 (first quartile)

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Definition (Measures of Variability)

• Measures of variability describe the spread or the disper-
sion of a set of data.
• Common Measures of Variability are:
• Range
• Inter-quartile Range
• Variance
• Standard Deviation
• Coefficient of Variation

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Definition (Range)
• Range is the simplest measure of variation.

• Difference between the largest and the smallest values in a

set of data is known as range.
Range = xlargest − xsmallest

Example

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

Range = 14-1=13

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Range (Contd...)
Disadvantages
• Ignores the way in which data are distributed

• Sensitive to outliers
Ex 1: 1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range=5-1=4
Ex 2: 1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range =120-1=119
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Descriptive Statistics

Definition (Interquartile Range)

• Can eliminate some outlier problems by using the interquar-
tile range.

• Eliminate some high and low-valued observations and cal-

culate the range from the remaining values.

• Interquartile range = 3rd quartile −1st quartile.

= Q3 − Q1

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Interquartile Range (Contd...)

Example

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Definition (Variance)
• Variance is based on the difference between the value of
each observation (xi ) and the mean and this difference is
called deviation about the mean.
• The variance of a set of observations is the average
squared deviation of the data points from their mean.
n
(xi − x̄)2
P

• Sample variance: s2 = i=1

n−1
N
(xi − µ)2
P

• Population variance: σ 2 = i=1

N

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Definition (Standard Deviation)

• The standard deviation of a set of observations is the posi-
tive square root of the variance of the set.
v
u n
uP
√ u (xi − x̄)2
• Sample standard deviation : s = s2 = i=1
t
n−1

v
u N
u (xi − µ)2
uP
√ t i=1
• Population standard deviation: σ = σ2 =
N

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Definition (Coefficient of Variation)

• It indicates how large the standard deviation is relative to
the mean.
• Measures relative variation.
• Always in percentage (%)
• Shows variation relative to mean
• Can be used to compare two or more sets of data measured
in different
 s  units
CV = × 100%
x̄

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Comparing Coefficient of Variation

• Stock A:
• Average price last year = $50
• Standard deviation = $ 7
s $7
CVA = × 100% = 100% = 14%
x̄ $50
• Stock B:
• Average price last year = $100
• Standard deviation = $ 10
s $10
CVB = × 100% = 100% = 10%
x̄ $100

Remark
Stock B is more variable than stock A, but stock B is less variable
relative to its price
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Descriptive Statistics

Relative location of values within a data set

The relative location help us determine how far a particular value
is from the mean.

Definition (Z Scores)
• A measure of distance from the mean (for example, a Z-
score of 2.0 means that a value is 2.0 standard deviations
from the mean).
• The difference between a value (xi ) and the mean (x̄), di-
vided by the standard deviation (s)
xi − x̄
Zi =
s

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Descriptive Statistics

Z Scores (Cont...)

Example
• If the mean is 14.0 and the standard deviation is 3.0, what
is the Z score for the value 18.5 ?

x − x̄ 18.5 − 14.0
Z= = = 1.5
s 3.0
• The value 18.5 is 1.5 standard deviations above the mean

Remark
A negative Z-score would mean that a value is less than the
mean.
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Business Statistics
Descriptive Statistics

Example
Firm A is chosen from an industry (group of firms that produce
the same, or similar, products) where the mean rate of return of
firms is 10%, the standard deviation being 5%. Firm B is chosen
from another industry where the mean rate of return of firms is
12%, the standard deviation being 6%. If Firm A’s rate of return
is 16% and Firm B’s rate of return is 18%, which of the two is
more profitable compared to its industry ?

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Example
The top 6 small cap mutual funds with (+)ve high risk of 1 year
return are given in following table. Find the Z-scores for each
small cap.

Small cap mutual funds with (+)ve high risks

Fund Name 1 Y Returns (in %)
Escorts High Yield Equity plan 9.3
Axis Small Cap Fund 0.9
SBI Small Cap Fund 0.4
Principal Small Cap Fund 5.0
Union Small Cap Fund 0.4
BOI AXA Small Cap Fund 10.0
Source: https://groww.in/mutual-funds/category/best-small-
cap-mutual-funds

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Definition (Chebyshev Rule)

• It makes the statement about the proportion of data values
that must be within a specified number of standard devia-
tions of the mean.
• Regardless of how the data are distributed, at least (1 −
1/k2 ) × 100% of the values will fall within k standard devia-
tions of the mean (for k > 1)

Example
Atleast within
(1 − 1/22 ) × 100% = 75%, For k=2 µ ± 2σ
(1 − 1/32 ) × 100% = 89%, For k=3 µ ± 3σ
(1 − 1/42 ) × 100% = 94%, For k=4 µ ± 4σ

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Definition (The Empirical Rule)

• If the data distribution is approximately bellshaped, then the
interval:
• µ ± 1σ contains about 68% of the values in the population.

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The Empirical Rule (Contd...)

• µ ± 2σ contains about 95% of the values in the population
or the sample.
• µ ± 3σ contains about 99.7% of the values in the population
or the sample.

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Example
• A cold drink bottling plant fills bottles of 500 ml capacity
with mean of 500 ml and standard deviation of 5 ml. At
least what percentage of bottles would contain cold drink
between 490 and 510 ml?
• Suppose the time between applying for a credit card and
getting the credit card is approximately bell-shaped and its
average has been estimated to be 8 days with a standard
deviation of about 2 days. Approximately what fraction of
people get the credit card within 4 days of apply?

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Descriptive Statistics

Measures of Shape
• Skewness
• Absence of symmetry
• Extreme values in one side of a distribution

• Kurtosis
• Peakedness of a distribution
• Leptokurtic: high and thin
• Mesokurtic: normal shape
• Platykurtic: flat and spread out

• Box and Whisker Plots

• Graphic display of a distribution
• Reveals skewness and outliers

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Skewness

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Example
• The mean of some price quote data is 5.5056 and the me-
dian is 3.92. From this information, what can you deduce
about the symmetry or skewness of the distribution ?
• Suppose a frequency distribution is skewed with a median
of $75.00 and a mode of $80.00. Which of the following is
a possible value for the mean of distribution? (a) $64.00 (b)
$78.00 (c) $90.00

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Definition (Kurtosis)
• Peakedness of a distribution
• Leptokurtic: high and thin
• Mesokurtic: normal in shape
• Platykurtic: flat and spread out

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Box and Whisker Plot

• Five summary measures are used:

• Median, Q2
• First quartile Q1
• Third quartile Q3
• Minimum value in the data set
• Maximum value in the data set
• Outer Fences
• Lower outer fence = Q1 – 3.0 IQR
• Upper outer fence = Q3 + 3.0 IQR

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• The Box
• Median (Vertical line across the box)
• First quartile
• Third quartile
• The Whisker
• Lower inner fence = smallest observation within Q1 –1.5IQR
• Upper inner fence = Largest observation within Q3 + 1.5IQR

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Descriptive Statistics

Example of Raw Data

Sample of daily production in Yards of 30 carpet looms

16.2 15.8 15.8 15.8 16.3 15.6
15.7 16.0 16.2 16.1 16.8 16.0
16.4 15.2 15.9 15.9 15.9 16.8
15.4 15.7 15.9 16.0 16.3 16.0
16.4 16.6 15.6 15.6 16.9 16.3

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Organizing Data
• Data array: A sequence of data in ascending or descending
order.
• Frequency distribution: grouping data into some defined
classes.
• Cumulative distribution: how many observations lie above
or below certain value?

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Presenting Data in Array

Sample of daily production in Yards of 30 carpet looms

15.2 15.7 15.9 16.0 16.2 16.4
15.4 15.7 15.9 16.0 16.3 16.6
15.6 15.8 15.9 16.1 16.3 16.8
15.6 15.8 15.9 16.1 16.3 16.8
15.6 15.8 16.0 16.2 16.4 16.9

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Definition (Frequency Distribution)

• A frequency distribution is a list or a table.
• containing class groupings (ranges within which the data
fall).
• and the corresponding frequencies with which data fall
within each grouping or category
• A relative frequency distribution presents frequencies in
terms of fractions or percentages
• The classes in the frequency distribution are all-inclusive
and mutually exclusive

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Frequency Distribution Example

Data array of average inventory (in days) for 20 convenience

stores
2.0 3.8 4.1 4.7 5.5
3.4 4.0 4.2 4.8 5.5
3.4 4.1 4.3 4.9 5.5
3.8 4.1 4.7 4.9 5.5

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Frequency Distribution Example

Frequencry distribution of average inventory (in days) for 20 con-

venience stores (6 classes)
Class Frequency
2.0-2.5 1
2.6-3.1 0
3.2-3.7 2
3.8-4.3 8
4.4-4.9 5
5.0-5.5 4

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Frequency Distribution
• Each class grouping has the same width
• Determine the width of each interval by
∗
xmax − xmin
Width of interval = ,
k
where,
∗
xmax = Next unit value after largest value in data
xmin = Smallest value in data
k = Total number of class intervals.
• Usually at least 5 but no more than 15 groupings
• Class boundaries never overlap

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Frequency Distribution (Cont...)

A step by step example

16.2 15.8 15.8 15.8 16.3 15.6
15.7 16.0 16.2 16.1 16.8 16.0
16.4 15.2 15.9 15.9 15.9 16.8
15.4 15.7 15.9 16.0 16.3 16.0
16.4 16.6 15.6 15.6 16.9 16.3

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Frequency Distribution (Cont...)

• Step 1: Select number of classes
no. of classes = 6
• Step 2: Determine width of a class interval
width of a class interval = (17.0-15.2)/6=0.3
• Step 3: Generate class boundaries
Class boundaries: 15.2, 15.5, 15.8, 16.1, 16.4, 16.7, 17.0
• Step 4: Count observations and assign to classes

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Frequency Distribution

Class Frequency
15.2-15.4 2
15.5-15.7 5
15.8-16.0 11
16.1-16.3 6
16.4-16.6 3
16.7-16.9 3

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Relative Frequency Distribution

Class Frequency Relative frequency Percentagat
15.2-15.4 2 2/30=0.07 7
15.5-15.7 5 5/30=0.17 17
15.8-16.0 11 11/30=0.36 36
16.1-16.3 6 6/30=0.20 20
16.4-16.6 3 3/30 = 0.10 10
16.7-16.9 3 3/30 =0.10 10
Total 30 1.00 100

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Definition (The Histogram)

• A graph of the data in a frequency distribution is called a
histogram
• The class boundaries (or class midpoints) are shown on the
horizontal axis
• the vertical axis is either frequency, relative frequency, or
percentage
• Bars of the appropriate heights are used to represent the
number of observations within each class

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Definition (Frequency Polygon)

• Used to represent frequency distributions graphically.
• Sketches outline of the data more clearly
• The polygon becomes increasingly smooth and curve-like
as we increase the number of classes and the number of
observations.

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Frequencey Polygon Example

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Frequencey Polygon Example

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Frequencey Polygon Example

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Definition (Cumulative Frequency Distribution)

• Enables us to see how many observations lie above or be-
low certain value.
• Less-than type and more-than type
• A graph of a cumulative frequency distribution is called an
ogive.
• The shape of an ogive for less-than type cumulative fre-
quency distribution would be slope up and to the right.

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Cumulative Frequency Distribution

Class Cumulative frequency cumulative relative frequency

Less than 15.2 0 0.00
Less than 15.5 2 0.07
Less than 15.8 7 0.23
Less than 16.1 18 0.60
Less than 16.4 24 0.80
Less than 16.7 27 0.90
Less than 17.0 30 1.00

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Ogive Example

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Definition (Pie Chart)

• Pie chart is a simple descriptive display often used to
present frequencies for categorical data.
• May be used for nominal or ordinal type data.
• The total area of the pie (circular in shape) represents 100%
of the quantity of interest.
• The arc length of each sector (and consequently its central
angle and area), is proportional to the quantity it represents.

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Pie Chart

Example (A job satisfaction survey)

Categories Responses (%)
Happy with career 33%
Enjoy job, but it is not on my career path 19%
Job is OK, but it is not on my career path 19%
Do not like my job, but it is on my career path 6%
My job just pays the bill 23%

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Example (Pie Chart)

Job satisfaction survey

Happy with career

23% Enjoy job, but it is not on my

33% career path

Job is OK, but it is not on my

6% career path

19% Do not like my job, but it is

19% on my career path

My job just pays the bill

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Bar Chart
• A bar chart is a chart with rectangular bars with lengths
proportional to the values that they represent.
• Often used to display categorical data.
• May be horizontal or vertical.
• Used to display values that were taken over time or on dif-
ferent conditions, usually on small data sets.

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Example (Bar Chart)

Investment type Amount (in thousands $) Percentage (%)
Stocks 46.5 42.27
Bonds 32.0 29.09
CD 15.5 14.09
Savings 16.0 14.55

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Example
Following are the number of items of similar type produced in a
factory during the last 50 days.

21 22 17 23 27 15 16 22 15 23
24 25 36 19 14 21 24 25 14 18
20 31 22 19 18 20 21 20 36 18
21 20 31 22 19 18 20 20 24 35
25 26 19 32 22 26 25 26 27 22

Arrange these observations into a frequency distribution with

both inclusive and exclusive class intervals choosing a suitable
number of classes.

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Example
If class mid-points in a frequency distribution of the ages of a
group of persons are: 25, 32, 39, 46, 53, and 60, find:
1 the size of the class-interval
2 the class boundaries
3 the class limits, assuming that the age quoted is the age
completed on the last birthdays.

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