ALLAMA IQBAL OPEN UNIVERSITY

Measures of variation
Course name: Business statistics
Course code: 8532

SIR AFTAB AHMED

Name Roll
Date of submission: 14 APRIL, 2017
Table of content
num
UNSA ARSHAD 589024
Measures of variation
Introduction
Significance of measures of variation
Properties of a good measure of variation
Measuring variation
Range
Definition of range
Example of range
Merits of range
Limitations of range
Uses of range
Quartile Deviation
Definition of quartile deviation
Example of quartile deviation
Merits of quartile deviation
Limitation of quartile deviation
Average deviation
Definition of average deviation
 Example of average deviation
Merits of average deviation
Limitation of average deviation
Standard deviation
Definition of standard deviation
Example of standard deviation
Merits of standard deviation
Limitation of standard deviation
Mathematical properties of standard deviation
Lorenz curve
Which measure of variation to use

Museful.easure of variation
INTRODUCTION
Measures of variation Quantities that express the amount of variation in a random
variable (compare measures of location). Variation is sometimes described
as spread or dispersion to distinguish it from systematic trends or differences.
Measures of variation are either properties of a probability distribution or sample
estimates of them.

The range of a sample is the difference between the largest and smallest value.
The interquartile range is potentially more If the sample is ranked in ascending
order of magnitude two values of x may be found, the first of which is exceeded by
75% of the sample, the second by 25%; their difference is the interquartile range.
An analogous definition applies to a probability distribution.

The variance is the expectation (or mean) of the square of the difference between
a random variable and its mean; it is of fundamental importance in statistical
analysis. The variance of a continuous distribution with mean is
and is denoted by 2. The variance of a discrete distribution is
and is also denoted by 2. The sample variance of a sample of n observations with
mean xx is
and is denoted by s2. The value (n 1) corrects for bias.
The standard deviation is the square root of the variance, denoted by (for a
distribution) or s (for a sample). The standard deviation has the same units of
measurement as the mean, and for a normal distribution about 5% of the
distribution lies beyond about two standard deviations each side of the mean. The
standard deviation of the distribution of an estimated quantity is termed
the standard error.
The mean deviation is the mean of the absolute deviations of the random variable
from the mean
The Measure of central tendency serve to locate the center of the distribution, but they do
not reveal how the items are spread out on either side of the center. This characteristic of
a frequency distribution is commonly referred to as variation. In a series all the items are
not equal. There is difference or variation among the values. The degree of variation is
evaluated by various measures of variation. Small variation indicates high uniformity of
the items, while large variation indicates less uniformity.

Significance of measures of variation

1. Determining the reliability of the central tendency.
2. Serving as a basis for the control of the variability.
3. Comparing two or more series with regard to their variability.
4. Facilitating the use of other statistical use. Such as correlation, regression etc.

Properties of a good measure of variation

1. It should be simple to understand.
2. It should be easy to compute.
3. It should be rigidly defined.
4. It should be based on each and every observation of the distribution.
5. It should be amenable to further algebraic treatment.
6. It should have sampling stability.
7. It should not be unduly affected by extreme observation.

Measuring variation
The following are the important methods of studying variation.
1. Range,
2. The Inter-quartile range or Quartile deviation,
3. The Average deviation,
4. The Standard deviation,
5. The Lorenz curve.
Of these, the first four are mathematical methods and the last is a graphical one.

Range
Range is the simpliest and quickest measure of dispersion. Being a positional measure it
accounts only the difference between the highest and lowest observation in any data
series.
So, R = L-S
Here, R= Range
L= Largest value.
S= Smallest value.

Coefficient of range
The relative measure corresponding to the range, called coefficient of range.
Coefficient of range = LS
Example of range LS

Example 1: Find the value of range and its co-efficient for the following data.
7, 9, 6, 8, 11, 10, 4
Solution:
L=11, S = 4.
Range = L S = 11- 4 = 7

Coefficient of range = = = = 0.467 11

L7S4
11 S4
L15
Example 2 : The yields (kg per plot) of a cotton variety from five plots are 8, 9, 8, 10 and
11. Find the range and coefficient of range.

Solution
L=11, S = 8.
Range = L S = 11- 8 = 3

Coefficient of range = = = = 0.158 11

L3S8
11 S8
L19
Merits of range
1. Simple to compute.
2. Easy to understand.
3. Quickly calculated.

Limitations of range

1. It is very much affected by the extreme items.

2. It is based on only two extreme observations.
3. It cannot be calculated from open-end class intervals.
4. It is not suitable for mathematical treatment.
5. It is a very rarely used measure.

Uses of range
1. For quality control.
2. Fluctuation in the share price.
3. Weather forecast.

Quartile Deviation
Quartile Deviation is half of the difference between the first and third quartiles. Hence, it
is called Semi Inter Quartile Range. The interquartile range or the quartile deviation is a
better measure of variation in a distribution than the range.
Here, avoiding the 25 percent of the distribution at both the ends uses the middle 50
percent of the distribution. In other words, the interquartile range denotes the difference
between the third quartile and the first quartile.
Symbolically, interquartile range = Q3 -Q1
Many times the interquartile range is reduced in the form of semi-interquartile range or
quartile deviation as shown below:
Semi interquartile range or Quartile deviation = (Q3 -Q1)/2
Coefficient of quartile deviation
The relative measure corresponding to the quartile deviation, called coefficient of quartile
deviation.
It can be changed into a relative measure of dispersion as follows:
Coefficient of Q.D.= Q3 Q1
Q3 Q1
Example of quartile deviation
Example 1: you are given the frequency distribution of 292 workers of a factory
according to their average weekly income. Calculate quartile deviation and its coefficient
from the following data:
Weekly income No. of worker Weekly income No. of worker
Below 1350 8 1450-1470 22
1350-1370 16 1470-1490 15
1370-1390 39 1490-1510 15
1390-1410 58 1510-1530 9
1410-1430 60 1530 & above 10
1430-1450 40

Solution: Calculation of Quartile Deviation

Weekly income No. of worker c.f
(Rs.) f
Below 1350 8 8
1350-1370 16 24
1370-1390 39 63
1390-1410 58 121
1410-1430 60 181
1430-1450 40 221
1450-1470 22 243
1470-1490 15 258
1490-1510 15 273
1510-1530 9 282
1530 & above 10 292
N= 292

N 146th observation
Median = size of the th observation = = 292
Median lies in the class 1410-1430 2
 N / 2 p.c. f
Median L i
= 1410+ = 1410 + 8.333 = 146 121 f
20
1418.333 60

Q1 = size of theth observation == 73th 292

N observation
Q1 lies in the class 1390-1410 4

N / 4 p.c. f
Q1 L i
= 1390 + = 1390 + 3.448 = 73 63 f
20
1393.448 58

Q3 = size of the th observation = = 3

3N292
th
219 observation 4
Q3 lies in the class 1430-1450

3 N / 4 p.c. f
Q3 L i
= 1430 + = 1430+ 8.333 = 219 181 f
20
1449 40
Coefficient of Q.D.= = = = 0.020 1449Q 3 1393
Q1 .448
55552
1449Q3 1393
2842 .448
Q1 .448
Example 2 : Based on the frequency
distribution given below, compute the following statistical measures to characterize the
distribution.
Annual tax paid No. of Managers
(Rs. thousand)
5-10 18
10-15 30
15-20 46
20-25 28
25-30 20
30-35 12
35-40 6
Calculate the inter-quartile range.
Solution: calculation of semi inter-quartile range
Annual tax paid No of managers p.c.f
(Rs.thousand) f
5-10 18 18
10-15 30 48
15-20 46 94
20-25 28 122
25-30 20 142
30-35 12 154
35-40 6 160
 N=160

Semi inter-quartile range = Q3 -Q1

Q1 = size of theth observation == 40 th 160

N observation
Q1 lies in the class 10-15. 4

N / 4 p.c. f
Q1 L i
= 10 + = 10 + 3.67 = 13.67 40 18 f
5
30
Q3 = size of the th observation = = 3
3N160
th
120 observation 4
Q3 lies in the class 20-25.

3 N / 4 p.c. f
Q3 L i
=20 + = 20.4.64 = 24.64 120 94 f
5
Semi inter-quartile range = Q3 -Q1 = 28
24.64 -13.67 = 10.97

Merits of Quartile Deviation:

1. It is Simple to understand and easy to calculate
2. It is not affected by extreme values.s
3. It can be calculated for data with open end classes also.

Limitations of Quartile Deviation:

1. It is not based on all the items. It is based on two positional values Q 1 and Q3 and
ignores the extreme 50% of the items 149
2. It is not amenable to further mathematical treatment.
3. It is affected by sampling fluctuations.

Average Deviation:
The range and quartile deviation are not based on all observations. They are positional
measures of dispersion. They do not show any scatter of the observations from an
average. The average deviation is measure of dispersion based on all items in a
distribution.
Average deviation is the average amount scatter of the items in a distribution from either
the mean or the median, ignoring the signs of the deviations.
Mathematically following formula represents the concept of A.D.
Case 1: Ungrouped data series; X Med
A.D= N
Case 2: Grouped data series; A.D.= f X X
Coefficient of average deviation N

The relative measure corresponding to the average deviation, called coefficient of

average deviation.
If average deviation has been computed from median, the coefficient of average deviation
shall be obtained by dividing average deviation by the median.
Coefficient of average deviation = A.D
If average deviation has been computed Median
from mean, the coefficient of average
deviation shall be obtained by dividing average deviation by the mean.
Coefficient of average deviation = A.D
Mean
Example of average deviation from ungrouped data
Example 1 : Calculate the average deviation and coefficient of average deviation of the
two income group of five and seven workers working in two different branches of a firm.
Branch 1 (income RS) Branch 2 (income RS)
4000 3000
4200 4000
4400 4200
4600 4400
4800 4600
4800
5800
Soluation:
Calculation of average deviation
Branch 1 Branch 1 Branch 2 Branch 2
Income(RS) X Med Income(RS) X Med
med=4400 med=4400
4000 400 3000 1400
4200 200 4000 400
4400 0 4200 200
4600 200 4400 0
4800 400 4600 200
4800 400
5800 1400
N=5 X Med N=7 =4 X Med
=1200 00
0

Branch 1: A.D===240 1200

X Med
Coff. Of A.D===0.054 240
A.N
5D
Branch 2: Median
X4000
Med
4400
A.D===571.43 7
N
Coff. Of A.D===0.13 571
A.D
.43
4400
Median
Example of average deviation
from grouped data
Example 1 : Calculate average deviation from mean and the following data.
Sales (In Thousand) No. of day
10-20 3
20-30 6
30-40 11
40-50 3
50-60 2
Solution:

Sales (In m.p. f (X-35)/10 fd X X

f X X

Thousand) X
10-20 15 3 -2 -6 18 54
20-30 25 6 -1 -6 8 48
30-40 35 11 0 0 2 22
40-50 45 3 1 3 12 36
50-60 65 2 2 4 22 44
N=25 fd 5` f X X
=2
04

Calculation of average deviation

A.D.= f X X
==5.16 204
N
25

X A
fd i
=35-=33 5 N
10
Example 2: Calculate mean deviation 25
for the following frequency distribution.
No. of colds No of persons
experienced in 12
month
0 15
1 46
 2 91
3 162
4 110
5 95
6 82
7 26
8 13
9 2
Solution:
No. of colds No of d = X-A X X
f X X fd
experienced persons
in 12 month
(X) f
0 15 -5 3.78 56.70 -75
1 46 -4 2.78 127.88 -184
2 91 -3 1.78 161.98 -273
3 162 -2 0.78 126.36 -324
4 110 -1 0.22 24.20 -110
5 95 0 1.22 115.90 0
6 82 1 2.22 182.04 82
7 26 2 3.22 83.72 52
8 13 3 4.22 54.86 39
9 2 4 5.22 10.44 8
N=642 f= X X 941. fd=-783
30

Calculation of average deviation

A.D.= f X X
==1.47 941
N.30
642

X A
fd i
=5+= 3.78 ( 785)N
1
642
MERITS OF AVERAGE
DEVIATION
1. A major advantages of average deviation is that it is simple to understand and
easy to calculate.
2. It takes into consideration each and every items item in the distribution. As a
result, a change in the value of any item will have its effect on the magnitude of
mean deviation.
3. The values of extreme items have less effect on the value of the mean deviation.
 4. As deviations are taken from a central value, it is possible to have meaningful
comparisons of the formation of different distributions.

LIMITATIONS OF AVERAGE DEVIATION

1. It is not capable of further algebraic treatment.
2. At times it may fail to give accurate results. The mean deviation gives best results
when deviations are taken from the median instead of from the mean. But in a
series, which has wide variations in the items, median is not a satisfactory
measure.
3. Strictly on mathematical considerations, the method is wrong as it ignores the
algebraic signs when the deviations are taken from the mean.
In view of these limitations, it is seldom used in business studies. A better measure
known as the standard deviation is more frequently used.

STANDARD DEVIATION

Standard Deviation

To find either standard deviation, first find the corresponding variance, and take the
square root of the answer. To take the square root, press: 2nd x2 and 2nd (-).

Alternatively, start the equation for the variance off with a square root and an extra left
parenthesis ")". End the expression with an extra right parenthesis

It is a measure of spread or variability in the sample. It is defined on the square root of

the arithmetic mean of the squared deviations of individual values around the mean.
Mathematically following formula represents the concept of S.D.
Case 1: Ungrouped data series;
It has two formula; 1) Deviation taking from actual mean and
2) Deviation taken from assumed mean.
1) Actual mean:

2X 2 X 2
2) Assumed mean:

d d N ( )2
N N
Case 2: Grouped data series;
It has two formula; 1) Deviation taking from actual mean and
2) Deviation taken from assumed mean.
1) Actual mean:

2 fX 2 X 2
2) Assumed mean:

fd fd N ( )2 i
N N
Coefficient of variation
The standard deviation discussed so far is an absolute measure of variation. The
corresponding relative measures is known as the coefficient of variation.
C.V. =
100
X
Variance: the square of the standard deviation is called variance.
Symbolically, variance = ( S .D.) 2
= 2
Example of standard deviation and coefficient of variation from
ungrouped data:
Example 1 : Find out the standard deviation from the weekly wages of ten workers
working in a factory.
Worker Weekly wages
A 1320
B 1310
C 1315
D 1322
E 1326
F 1340
G 1325
H 1321
I 1320
J 1331

Solution:
Calculation of Standard deviation
Workers Weekly wages (X-A)=d d2
X
A 1320 0 0
B 1310 -10 100
C 1315 -5 25
D 1322 2 4
E 1326 6 36
F 1340 20 400
G 1325 5 25
H 1321 1 1
I 1320 0 0
J 1331 11 121
N=10 d 30 d 2
712

d 2

(
d )2
==7.89 712
N ( 30 )N
2

10 10
Example 2: The following table gives the fluctuations in the prices of shares a company.
Price(in price)
318
322
325
312
324
315
308
318
Calculate the mean, standard deviation and coefficient of variation.
Solution: Calculation of mean, standard deviation and coefficient of variation.
X (X-A)=d d2
318 -6 36
322 -2 4
325 1 1
312 -12 144
324 0 0
315 -9 81
308 -16 256
318 -6 36
X= 2542 d 30 d 2 712
Solution:

X 2542
X
= = 317.75 N
8

d ( d )2
2

== 5.54 558N 50N2

( )
C.V. = = 58.54 8
100
100
= 1.74% 317x.75

Merits of standard deviation

1. The standard deviation is the best measure of variation of its mathematical
characteristics. Because it is based on every items of the distribution.
2. It is possible to calculate the combined standard deviation of two or more
groups. This is not possible with any other measure.
3. For comparing the variability of two or more distributions coefficient of
variation is considered to be most appropriate and this measure is based on
mean and standard deviation.
4. Standard deviation is most prominently used in further statistical work.

Limitations
1. As compared to other measures it is difficult to compute.
 2. It gives more weight to extreme values and less to those which are near the
mean. it is because of the fact the squares of the deviation which are big in
size would be proportionately greater than the squares of those deviations
which are comparatively small.
Lorenz CURVES
Figure 1: shows two Lorenz curves by way of illustration. The straight line AB is a
line of equal distribution, whereas AEB shows complete inequality. Curve ACB and
curve ADB are the Lorenz curves.

A F
Figure 1: Lorenz Curve
Which measure of variation to use
Unlike the measures of central tendency, in case of measures of variation also the
question arises which measures to use. The choice of a suitable measure depends on the
following factors:
1. The types of data available. If observation are few in numbers, or contain extreme
values, avoid the standard deviation. If they are generally skewed, avoid the mean
deviation as well. If they are gaps around the quartiles, the quartiles deviation
should be avoided. If there are open-end classes, the quartiles measures of
variation should be preferred.
2. the purpose of investigation. In an elementary treatment of statistical series in
which a measures of variability is desired only for itself, any of the three
measures, namely. Range, quartile deviation, and average deviation, would be
acceptable. Probably the average deviation would be superior.