Describing Data Numerically

Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation
 Measures of Central Tendency
Overview
Central Tendency

Mean Median Mode

x i
x  i1
n
Arithmetic Midpoint of Most frequently
average ranked values observed value
 Arithmetic Mean
 The arithmetic mean (mean) is the most
common measure of central tendency
 For a population of N values:
N

x i
x1  x 2    x N Population
μ 
i1
values
N N
Population size
 For a sample of size n:
n

x i
x1  x 2    x n Observed
x i1
 values
n n
Sample size
 Arithmetic Mean

 The most common measure of central tendency

 Mean = sum of values divided by the number of values
 Affected by extreme values (outliers)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Mean = 3 Mean = 4
1  2  3  4  5 15 1  2  3  4  10 20
 3  4
5 5 5 5
 Median
 In an ordered list, the median is the “middle”
number (50% above, 50% below)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Median = 3 Median = 3

 Not affected by extreme values

 Finding the Median

 The location of the median:

n 1
Median position  position in the ordered data
2
 If the number of values is odd, the median is the middle number
 If the number of values is even, the median is the average of
the two middle numbers

n 1
 Note that is not the value of the median, only the
2
position of the median in the ranked data
 Mode
 A measure of central tendency
 Value that occurs most often
 Not affected by extreme values
 Used for either numerical or categorical data
 There may may be no mode
 There may be several modes

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

No Mode
Mode = 9
 Review Example
 Five houses on a hill by the beach
$2,000 K
House Prices:

$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000

$100 K

$100 K
 Review Example:
Summary Statistics

House Prices:
 Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000
 Median: middle value of ranked data
Sum 3,000,000
= $300,000

 Mode: most frequent value

= $100,000
 Which measure of location
is the “best”?
 Mean is generally used, unless extreme
values (outliers) exist . . .
 Then median is often used, since the median
is not sensitive to extreme values.
 Example: Median home prices may be reported for
a region – less sensitive to outliers
 Shape of a Distribution

 Describes how data are distributed

 Measures of shape
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean
 Geometric Mean
 Geometric mean
 Used to measure the rate of change of a variable
over time
1/n
x g  (x1 x 2  x n ) (x1 x 2  x n )
n

 Geometric mean rate of return

 Measures the status of an investment over time

rg (x1 x 2 ... x n )1/n  1


Where xi is the rate of return in time period i
 Example

An investment of $100,000 rose to $150,000 at the

end of year one and increased to $180,000 at end
of year two:

X1 $100,000 X 2 $150,000 X3 $180,000

50% increase 20% increase

What is the mean percentage return over time?

 Example
(continued)

Use the 1-year returns to compute the arithmetic

mean and the geometric mean:

Arithmetic (50%)  (20%)

mean rate X 35% Misleading result
2
of return:

Geometric rg (x1 x 2 )1/n  1

mean rate
[(50) (20)]1/2  1 More
of return:
(1000)1/2  1 31.623  1 30.623% accurate
result
 2.2
Measures of Variability
Variation

Range Interquartile Variance Standard Coefficient of

Range Deviation Variation

 Measures of variation give

information on the spread
or variability of the data
values.

Same center,
different variation
 Range
 Simplest measure of variation
 Difference between the largest and the smallest
observations:

Range = Xlargest – Xsmallest

Example:

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

Range = 14 - 1 = 13
 Disadvantages of the Range
 Ignores the way in which data are distributed

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
 Interquartile Range

 Can eliminate some outlier problems by using

the interquartile range

 Eliminate high- and low-valued observations

and calculate the range of the middle 50% of
the data

 Interquartile range = 3rd quartile – 1st quartile

IQR = Q3 – Q1
 Interquartile Range

Example:
X Median X
minimum Q1 (Q2) Q3 maximum
25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27
 Quartiles
 Quartiles split the ranked data into 4 segments with
an equal number of values per segment

25% 25% 25% 25%

Q1 Q2 Q3
 The first quartile, Q1, is the value for which 25% of the
observations are smaller and 75% are larger
 Q2 is the same as the median (50% are smaller, 50% are
larger)
 Only 25% of the observations are greater than the third
quartile
 Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position: Q1 = 0.25(n+1)

Second quartile position: Q2 = 0.50(n+1)

(the median position)

Third quartile position: Q3 = 0.75(n+1)

where n is the number of observed values

 Quartiles

 Example: Find the first quartile

Sample Ranked Data: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 = is in the 0.25(9+1) = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5
 Population Variance
 Average of squared deviations of values from
the mean
N
 Population variance:
2
 (x  μ)
i
2

σ  i1
N
Where μ = population mean
N = population size
xi = ith value of the variable x
 Sample Variance
 Average (approximately) of squared deviations
of values from the mean
n
 Sample variance:
2
 (x  x)i
2

s  i1
n -1
Where X = arithmetic mean
n = sample size
Xi = ith value of the variable X
 Population Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Has the same units as the original data

 Population standard deviation:

 i
(x  μ) 2

σ i1
N
 Sample Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Has the same units as the original data

 Sample standard deviation: n

 i
(x  x) 2

S i1
n -1
 Calculation Example:
Sample Standard Deviation
Sample
Data (xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16

(10  X)2  (12  x)2  (14  x)2    (24  x)2

s
n 1

(10  16) 2  (12  16) 2  (14  16) 2    (24  16) 2


8 1

126 A measure of the “average”

  4.2426 scatter around the mean
7
 Measuring variation

Small standard deviation

Large standard deviation

 Comparing Standard Deviations

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 0.926

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.570
 Advantages of Variance and
Standard Deviation

 Each value in the data set is used in the

calculation

 Values far from the mean are given extra

weight
(because deviations from the mean are squared)
 Coefficient of Variation

 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 units

 s
CV   100%
 x 
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50

 Standard deviation = $5

s $5
CVA   100%  100% 10%
x $50 Both stocks
 Stock B: have the same
standard
 Average price last year = $100
deviation, but
 Standard deviation = $5 stock B is less
variable relative
to its price
s $5
CVB   100%  100% 5%
x $100
 Chebychev’s Theorem
 For any population with mean μ and
standard deviation σ , and k > 1 , the
percentage of observations that fall within
the interval
[μ + kσ]
Is at least

2
100[1  (1/k )]%
 Chebychev’s Theorem
(continued)
 Regardless of how the data are distributed, at
least (1 - 1/k2) of the values will fall within k
standard deviations of the mean (for k > 1)
 Examples:

At least within
(1 - 1/1.52) = 55.6% ……... k = 1.5 (μ ± 1.5σ)
(1 - 1/22) = 75% …........... k = 2 (μ ± 2σ)
(1 - 1/32) = 89% …….…... k = 3 (μ ± 3σ)
 The Empirical Rule
 If the data distribution is bell-shaped, then
the interval:
 μ 1σ contains about 68% of the values in
the population or the sample

68%

μ
μ 1σ
 The Empirical Rule

μ 2σ contains about 95% of the values in
the population or the sample

μ 3σ contains almost all (about 99.7%) of
the values in the population or
the sample

95% 99.7%

μ 2σ μ 3σ
2.3
Weighted Mean

 The weighted mean of a set of data is

n

w x i i
w 1x1  w 2 x 2    w n x n
x i1

n n

Where wi is the weight of the ith observation
and n  w i

 Use when data is already grouped into n classes, with

wi values in the ith class
2.4
The Sample Covariance
 The covariance measures the strength of the linear relationship
between two variables

 The population covariance:

N

 (x   i x )(yi   y )
Cov (x , y)  xy  i1
N
 The sample covariance:
n

 (x  x)(y  y)
i i
Cov (x , y) s xy  i1
n 1

Only concerned with the strength of the relationship

No causal effect is implied
 Interpreting Covariance

 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) = 0 x and y are independent
 Coefficient of Correlation
 Measures the relative strength of the linear relationship
between two variables

 Population correlation coefficient:

Cov (x , y)
ρ
σXσY
 Sample correlation coefficient:

Cov (x , y)
r
sX sY
 Features of
Correlation Coefficient, r
 Unit free
 Ranges between –1 and 1
 The closer to –1, the stronger the negative linear
relationship
 The closer to 1, the stronger the positive linear
relationship
 The closer to 0, the weaker any positive linear
relationship
 Scatter Plots of Data with Various
Correlation Coefficients
Y Y Y

X X X
r = -1 r = -.6 r=0
Y
Y Y

X X X
r = +1 r = +.3 r=0
 Summary
 Described measures of central tendency
 Mean, median, mode
 Illustrated the shape of the distribution
 Symmetric, skewed
 Described measures of variation
 Range, interquartile range, variance and standard deviation,
coefficient of variation
 Discussed measures of grouped data
 Calculated measures of relationships between
variables
 covariance and correlation coefficient