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Lecture Slide
Lecture Slide
Numerical Descriptive
Measures
X i
X1 + X 2 + + Xn
X= i=1
=
n n
Sample size Observed values
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 4
Measures of Central Tendency:
The Mean (con’t) DCOVA
11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20
Mean = 13 Mean = 14
11 + 12 + 13 + 14 + 15 65 11 + 12 + 13 + 14 + 20 70
= = 13 = = 14
5 5 5 5
11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20
Median = 13 Median = 13
Note that
n + 1 is not the value of the median, only the position of
2
the median in the ranked data.
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6
Mode = 9 No Mode
X G = ( X1 X 2 X n ) 1/ n
RG = [(1 + R1 ) (1 + R 2 ) (1 + Rn )]1/ n − 1
▪ Where Ri is the rate of return in time period i.
Arithmetic
mean rate ( −.5) + (1) Misleading result
X= = .25 = 25%
of return: 2
Geometric RG = [(1 + R1 ) (1 + R2 ) (1 + Rn )] − 1
1/ n
More
mean rate of = [(1 + ( −.5)) (1 + (1))]1 / 2 − 1 representative
return: = [(.50) ( 2)]1 / 2 − 1 = 11 / 2 − 1 = 0% result
Central Tendency
Example:
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Range = 13 - 1 = 12
7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5
▪ Sensitive to outliers
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
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
S = 2 i =1
n -1
Where X = arithmetic mean
n = sample size
Xi = ith value of the variable X
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 18
Measures of Variation:
The Sample Standard Deviation
DCOVA
◼ Most commonly used measure of variation.
◼ Shows variation about the mean.
◼ Is the square root of the variance.
◼ Has the same units as the original data.
n
◼ Sample standard deviation: (X i − X) 2
S= i=1
n -1
▪ If the values are all the same (no variation), all these
measures will be zero.
S
CV = 100%
X
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 25
Measures of Variation:
Comparing Coefficients of Variation
DCOVA
◼ Stock A:
◼ Mean price last year = $50.
S $5
CVA = 100% = 100% = 10%
X $50 Both stocks have
◼ Stock B: the same
standard
◼ Mean price last year = $100. deviation, but
stock B is less
◼ Standard deviation = $5. variable relative
to its mean price.
S $5
CVB = 100% = 100% = 5%
X $100
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 26
Measures of Variation:
Comparing Coefficients of Variation (con’t)
◼ Stock A:
DCOVA
◼ Mean price last year = $50.
S $5
CVA = 100% = 100% = 10%
X $50 Stock C has a
much smaller
◼ Stock C:
standard
◼ Mean price last year = $8. deviation but a
much higher
◼ Standard deviation = $2. coefficient of
variation
S $2
CVC = 100% = 100% = 25%
X $8
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 27
Locating Extreme Outliers:
Z-Score
DCOVA
▪ To compute the Z-score of a data value, subtract the
mean and divide by the standard deviation.
Skewness
Statistic < 0 0 >0
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 32
Shape of a Distribution -- Kurtosis
measures how sharply the curve rises
approaching the center of the distribution
DCOVA
Sharper Peak
Than Bell-Shaped
(Kurtosis > 0)
Bell-Shaped
(Kurtosis = 0)
Flatter Than
Bell-Shaped
(Kurtosis < 0)
◼ Constructing a boxplot.
Q1 Q2 Q3
◼ The first quartile, Q1, is the value for which 25% of the
values are smaller and 75% are larger.
◼ Q2 is the same as the median (50% of the values are
smaller and 50% are larger).
◼ Only 25% of the values are greater than the third quartile.
(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data,
so Q1 = (12+13)/2 = 12.5.
◼ Measures like Q1, Q3, and IQR that are not influenced
by outliers are called resistant measures.
Example:
Median X
X Q1 Q3 maximum
minimum (Q2)
25% 25% 25% 25%
12 30 45 57 70
Interquartile range
= 57 – 30 = 27
> ≈ <
> ≈ <
> ≈ <
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3
00 223 3 5 5 27 27
X i
X1 + X2 + + XN
= i=1
=
N N
Where μ = population mean
N = population size
Xi = ith value of the variable X
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 48
Numerical Descriptive Measures
For A Population: The Variance σ2
DCOVA
◼ Average of squared deviations of values from
the mean.
N
◼ Population variance: (X − μ) i
2
σ2 = i=1
N
N
◼ Population standard deviation:
i
(X − μ) 2
σ= i=1
N
68%
µ
µ ± 1σ
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 52
The Empirical Rule
DCOVA
◼ Approximately 95% of the data in a symmetric mound-
shaped distribution lies within two standard deviations
of the mean, or µ ± 2σ.
95% 99.7%
μ 2σ μ 3σ
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 53
Using the Empirical Rule
DCOVA
▪ Suppose that the variable Math SAT scores is bell-
shaped with a mean of 500 and a standard deviation
of 90. Then:
▪ Approximately 68% of all test takers scored between 410
and 590, (500 ± 90).
At least Within
◼ The Covariance.
◼ The Coefficient of Correlation.
( X − X)( Y − Y )
i i
cov ( X , Y ) = i=1
n −1
◼ Only concerned with the strength of the relationship.
◼ No causal effect is implied.
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 57
Interpreting Covariance
DCOVA
◼ Covariance between two variables:
cov(X,Y) > 0 X and Y tend to move in the same direction.
cov(X,Y) < 0 X and Y tend to move in opposite directions.
cov (X , Y)
r=
SX SY
Where,
n
(X − X)(Y − Y)
n n
i i (X − X)i
2
(Y − Y )
i
2
cov (X , Y) = i=1
SX = i=1
SY = i=1
n −1 n −1 n −1
X X
r = -1 r = -.6
Y
Y Y
X X X
r = +1 r = +.3 r=0
ALWAYS LEARNING Copyright © 2020 Pearson Education Ltd. Slide 61
Pitfalls in Numerical
Descriptive Measures
DCOVA
◼ Data analysis is objective:
◼ Should report the summary measures that best
describe and communicate the important aspects of
the data set.