CHAPTER 3: NUMERICAL DESCRIPTIVE MEASURES

3.1 MEASURES OF CENTRAL LOCATION

MEAN- The average value of a variable; the most commonly used measure
of central location, also referred to as the mean or the average.
MEDIAN- The middle value when a data set is ordered from least to
greatest.
MODE- the number that occurs most often in a data set.
3.2 PERCENTILES AND BOXPLOTS
PERCENTILE- The pth percentile divides a data set into two parts:
approximately p percent of the observations have values less than the pth
percentile and approximately (100 – p) percent of the observations have values
greater than the pth percentile.
BOXPLOT- a convenient way to graphically display the five-number
summary of the variable. It is also used informally to gauge the shape of the
distribution.
3.3 THE GEOMETRIC MEAN
GEOMETRIC MEAN- The geometric mean is a multiplicative average of a
variable.

= geometric mean

= number of values

= values to average
GEOMETRIC MEAN RETURN- the average rate of return of a set of values
calculated using the products of the terms.

= geometric mean

= number of values

= values to average
ARITHMETIC MEAN VS GEOMETRIC MEAN-
ARITHMETIC MEAN- appropriate for analyzing a one-year investment.
GEOMETRIC MEAN- appropriate for analyzing a multi-year
investment.
 AVERAGE GROWTH RATE- For growth rates g1, g2 …, gn, the average growth
rate Gg is computed as Gg = n(1 + g1)(1 + g2)⋯(1 + gn) − 1, where n is the number
of multi-period growth rates.
3.4 MEASURES OF DISPERSION
RANGE- The difference between the maximum and the minimum values of a
variable. It is not considered as a good measure of dispersion because it focuses
on the extreme values and ignores every other observation in the sample or
population.
Range = Max - Min
ABSOLUTE MEAN DEVIATION- The average of the absolute differences
between the observations and the mean.

x̄ = sample mean
n= sample size

μ= population mean
N= population size
VARIANCE- The average of the squared differences from the mean; a
common measure of dispersion.

STANDARD DEVIATION- The positive square root of the variance; a common

measure of dispersion.

COEFFICIENT OF VARIATION- The ratio of the standard deviation of a

variable to its mean; a relative measure of dispersion. It is calculated by
dividing a variable’s standard deviation by the mean.

3.5 MEAN-VARIANCE ANALYSIS

SHAPRE RATIO- A ratio calculated by dividing the difference of the
mean return from the risk-free rate by the asset’s standard deviation.
 = mean return for the investment

= mean return for a risk-free asset

= standard deviation for the investment

3.6 ANALYSIS OF RELATIVE LOCATION
CHEBYSHEV’S THEOREM
EMPIRICAL RULE
Z-SCORES
3.7 MEASURES OF ASSOCIATION

upper case (Σ) or lower case (σ)