USES OF VARIANCE, STANDARD DEVIATION

AND COEFFICIENT OF VARIATION

Ana Lou O. Bucag
PhDEL Student
OBJECTIVES
At the end of this presentation, you should be able to:

1. Define variance, standard deviation and coefficient of

variation
2. Calculate the variance, standard deviation and coefficient of
variance
3. Differentiate variance, standard deviation and coefficient of
variation
 Variance Standard Deviation Coefficient of
Variation

The term variance refers to a The standard deviation The coefficient of variation (CV) is
statistical measurement of the is calculated  as the square root of the ratio of the standard deviation
spread between numbers in a data variance by determining each data to the mean and shows the extent
set. point's deviation relative to the of variability in relation to the
mean. mean of the population.
Variance is a measure of the distance
of each variable from the average
value or mean in its data set.

You can use it to calculate deviation

within the set and it's a valuable tool
for investors and finance professionals.

Understanding what variance is and

how to use it can help you improve
your data analysis skills. 
 FORMULA
Population Sample
Calculate the variance of the data set 82,93,98,89,88.
82+93+98+89+88=450/5

X x̄ X-x̄ (X-x̄)²

82 90 -8 64
93 90 3 9
98 90 8 64
89 90 -1 1
88 90 -2 4

142
_______________
5-1

142
______________
4

= 35.5
Calculate the Standard Deviation.

X x̄ X-x̄ (X-x̄)²

82 90 -8 64
93 90 3 9
98 90 8 64
89 90 -1 1
88 90 -2 4

142
_______________
5-1

142
______________
4
SD= 5.958
= 35.5
Practice Problem 1: Sports

Suppose a basketball coach wants to summarize the

mean and standard deviation of points scored by the 12
players on his team.

When calculating the standard deviation of points scored,

should he use the population or sample standard
deviation formula?
Practice Problem 1: Sports
Suppose a basketball coach wants to summarize the
mean and standard deviation of points scored by the 12
players on his team.

When calculating the standard deviation of points scored,

should he use the population or sample standard
deviation formula?

Answer: He should use the population standard

deviation because he is only interested in the points scored
by his players and not any other players on any other team.
Practice Problem 2: Height

Suppose a gym teacher wants to summarize the mean and

standard deviation of heights of students in his class.
When calculating the standard deviation of height, should he
use the population or sample standard deviation formula?
Practice Problem 2: Height
Suppose a gym teacher wants to summarize the mean and
standard deviation of heights of students in his class.
When calculating the standard deviation of height, should he
use the population or sample standard deviation formula?
Answer: He should use the population standard
deviation because he is only interested in the height of
students in this one particular class.
Practice Problem 3: Biology

Suppose a biologist wants to summarize the mean and

standard deviation of the weight of a particular species of
turtles. She decides to go out and collect a simple random
sample of 20 turtles from the population.
When calculating the standard deviation of weights, should
she use the population or sample standard deviation formula?
Practice Problem 3: Biology

Suppose a biologist wants to summarize the mean and

standard deviation of the weight of a particular species of
turtles. She decides to go out and collect a simple random
sample of 20 turtles from the population.
When calculating the standard deviation of weights, should
she use the population or sample standard deviation formula?
Answer: She should use the sample standard
deviation because she is interested in the weights of the
entire population of turtles, not just the weights of the
turtles in her sample.
Practice Problem 4: Manufacturing

Suppose an inspector wants to summarize the mean and standard

deviation of the weight of tires produced at a certain factory. He
decides to collect a simple random sample of 40 tires from the
factory and weighs each of them.
When calculating the standard deviation of weights, should he use
the population or sample standard deviation formula?
Practice Problem 4: Manufacturing
Suppose an inspector wants to summarize the mean and standard
deviation of the weight of tires produced at a certain factory. He
decides to collect a simple random sample of 40 tires from the
factory and weighs each of them.
When calculating the standard deviation of weights, should he use
the population or sample standard deviation formula?
Answer: He should use the sample standard deviation because
he is interested in the weights of all tires produced at this factory,
not just the weights of the tires in his sample.
How Can the Coefficient of Variation Be Used?

 Chemistry
 Engineering
 Physics
 Economics
 Neuroscience
 Education
Coefficient of variation is used to know the
consistency of the data. By consistency we mean the
uniformity in the values of the data/distribution from
the arithmetic mean of the data/distribution.
Coefficient of Variation is also very useful when
comparing two or more sets of data that are
measured in different units of measurement.
Example
suppose an investor is considering investing in the
following two mutual funds:

Mutual Fund A: mean = 9%, standard deviation = 12.4%

Mutual Fund B: mean = 5%, standard deviation = 8.2%
The investor can calculate the coefficient of variation for each
fund:

•CV for Mutual Fund A = 12.4% / 9% = 1.38

•CV for Mutual Fund B = 8.2% / 5% = 1.64

Since Mutual Fund A has a lower coefficient of variation, it offers

a better mean return relative to the standard deviation.
 Who is
more
consistent?