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Lecture 3
The geometric mean
All U and multiply them

Percentiles

🔣 The p’th percentile (with p=(0, 100) is the observation that divides the
population in two, in such a way that p% of the observations are smaller or
equal to it and (100 - p)% of the observations are larger or equal than it)

Lecture 3 1
 Where X(a) and X(a+1) are a(th) and (a+1)th observations in the x-ordered
population

Example
Let us calculate the 25th percentile of x

Quartiles

🔣 Split the population into 4 - It’s the percentiles 25, 50 and 75

25 = 25 under and 25 over( 50)

50 = the 25 (25) under and the 25 over (75)

75 = the 25 under (50) and 25 over (100)

🔣 The second quartile is the median

Lecture 3 2
 A problem with the Central tendency measures

X1, X2, X3 have the same mean, median and mode.

But they are clearly different.

Solved through:

Measures of variability

Range

🔣 It is the difference between the largest and smallest observations

⚠ Problem: Very sensitive to outliers - like the 99 and 01 in the above

example

Example

Lecture 3 3
 The interquartile range:

🔣 Difference between the third and the first quartiles

Example X1

Lecture 3 4
 Example X3

Lecture 3 5
 Variance

⚠ the variance can never be negative

Can be written like this:

It has a dummy variable (X)

Lecture 3 6
 This one is called the sample variance

Example

Lecture 3 7
 Standard deviation

🦜 Standard deviation = the square root of the variance

📈 The greater the standard deviation - the greater the volatility to the
mean.
i.e. the number indicates how much the price moves in comparison
to the average rate of return.

Lecture 3 8
 How to do it:

🔢 1. Calculating the mean = Add all the data points and divide by
the number of data points.

📈 2. Calculate the variance for each data point =

1. Subtract the mean from the value of the data point.
2. Square(upphöjt med två) each individual subtraction
calculation
3. Sum the results
4. Divide by the number of data points minus 1

📉 3. Get the Standard Deviation = Square root the variance from

the result of 2.

Lecture 3 9
 Coefficient of variation

Example

X - salary Y - number of kids

25000 1
25000 1

25000 2
25000 1
25000 2

25000 3
25000 4
25000 4

25000 2
26000 4

Lecture 3 10
 The CV of X = 1,2%
The CV of Y = 50%

The skewness

symmetrical - like the grades of this course

Right -Skewed

Lecture 3 11
 Left-Skwed

If SK = 0, X is symmetrical

if SK > 0 X is right skewed

if SK < 0 X is left skewed

The more it is - the more it’s skewed

Measures of relationships between variables (correlation)

Covariance let x and y be two variables measured

On the elements of the population (U)

Lecture 3 12
 ✌ Coefficient of correlation

if Cxy,u = 0 no association between x and y

if Cxy,u > 0 Positive linear association between x and y

if Cxy,u < 0 Negative linear association between x and y

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Lecture 3 14