Coefficient Of Variation

A statistical measure of the dispersion of data points in a data series around the mean. It is calculated as
follows:

The coefficient of variation represents the ratio of the standard deviation to the mean, and it is   a
useful statistic for comparing the degree of variation from one data series to another, even if the
means are drastically different from each other.

In the investing world, the coefficient of variation allows you to determine how much volatility (risk)
you are assuming in comparison to the amount of return you can expect from your investment. In
simple language, the lower the ratio of standard deviation to mean return, the better your risk-return
tradeoff. l

In mathematical term
COEFFICIENT OF VARIATION = σ /

STANDARD DEVIATION (σ)

Measure of the unpredictability of a random variable, expressed as the average deviation of a
set of data from its arithmetic mean and computed as the positive square root of the variance.
Customarily represented by the lower-case Greek letter sigma (s), it is considered the most
useful and important measure of dispersion which has all the essential properties of the
variance plus the advantage of being determined in the same units as those of
the original data. Also called root mean square (RMS) deviation.

STANDARD DEVIATION (σ) =√ (∑d2/n)-(∑d/n)2 for the raw data.

=√ (∑fd2 /∑f) – (∑fd /∑f)2 for the frequency distribution

ARITHMATIC MEAN ( )
Simple or arithmetic average of a range of values or quantities, computed by dividing the total of all
values by the number of values. It is the most common and best general purpose measure of the mid-point
(around which all other values cluster) of a set of values, but is prone to distortion by the presence of
extreme values and may require use of a measure of distortion (such as mean deviation or standard
deviation).

ARITHMATIC MEAN ( ) =A+∑ d/n for raw data

A+∑fd/n for frequency distribution

 A is assumed mean, d=x-A, f is frequency,∑ is summation, n is number of items

Let us take a real example for coefficient of variation. Coefficient of variation refers to
consistency, sustainability etc..,

The monthly profit (in INR) of pizza hut for every month in Chennai and Bangalore as follows:
Chennai BANGALORE
IN 0000’S IN 0000’S
Jan 25 45
Feb 27.5 30
Mar 19.2 24
Apr 40 42.5
May 52 55
Jun 20 22
July 23.5 24.35
Aug 34.75 28.75
Sep 42 32
Oct 30 22
Nov 23 20
Dec 26.8 23.5
From the above data, where in your opinion does Dominoes get consistent sales?

60

50

40

30
Chennai in 0000's
Bangalore in 0000's
20

10

0
B L AY LY UST T
JA
N
FE AR PRI JU
N
JU SE
P
OC NO
V
DE
C
M A M G
AU
CONSISTENCY OF PIZZA HUT IN CHENNAI:

x d=x-A,x-30 d2
25 -5 25
27.5 -2.5 6.25
19.2 -10.8 116.64
40 10 100
52 22 484
20 -10 100
23.5 -7.5 56.25
34.75 4.75 22.5625
42 12 144
30 0 0
23 -7 49
26.8 -3.2 10.24
∑d=2.75 ∑d2 =1113.9425

A.M
= A+∑d/n = 30+0.2 = 30.2

=30.2

S.D

σ =√ (∑d2/n)-(∑d/n)2

σ =√ (1113.94245/12) – (2.75/12)2
σ =√ (92.7671)
σ = 9.63

COEEFFICIENT OF VARIATION:

COEFFICIENT OF VARIATION = σ / *100

=9.63/30.2*100
=31.88

COEFFICIENT OF VARIATION=31.88
CONSISTENCY OF PIZZA HUT IN BANGALORE:

x d=x-A,x-30 d2
45 15 225
30 0 0
24 -6 36
42.5 12.5 156.25
55 25 625
22 -8 64
24.35 -5.65 31.9225
28.75 -1.25 1.5625
32 2 4
22 -8 64
20 -10 100
23.5 -6.5 42.25
∑d=9.1 ∑d2 =1349.985
A.M
= A+∑d/n = 30+0.75 = 30.75

=30.75

S.D

σ =√ (∑d2/n)-(∑d/n)2
σ =√(1349.985/12)-(9.1/12)2
σ =√111.6375
σ =10.5

COEEFFICIENT OF VARIATION:
COEFFICIENT OF VARIATION = σ / *100
=10.5/30.75*100
=34.14

COEFFICIENT OF VARIATION =34.14

 Hence from the above calculation we come to know that the coefficient of variance of
Chennai is less than Bangalore ,so PIZZA HUT IN CHENNAI ATTAINS MORE
CONSISTENCY.