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Variance

Variance is a statistical measurement that quantifies the spread of numbers in a data set by calculating how far each number is from the mean. It is computed by squaring the differences between each data point and the mean, summing those squares, and dividing by the number of values minus one for a sample. The standard deviation, which indicates consistency, is the square root of the variance.

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13 views2 pages

Variance

Variance is a statistical measurement that quantifies the spread of numbers in a data set by calculating how far each number is from the mean. It is computed by squaring the differences between each data point and the mean, summing those squares, and dividing by the number of values minus one for a sample. The standard deviation, which indicates consistency, is the square root of the variance.

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tonny odhiambo
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VARIANCE

Definition
Variance measures how far each number in a data set is from the mean (average) and thus from
every other number in the set. It is a statistical measurement of the spread between numbers in a
data set. It measures how far each number in the set is from the mean (average), and thus from
every other number in the set. Variance is often depicted by this symbol: σ2.
The square root of the variance is the standard deviation (SD or σ), which helps determine the
consistency. In statistics, variance measures variability from the average or mean. It is
calculated by taking the differences between each number in the data set and the mean, squaring
the differences to make them positive, and then dividing the sum of the squares by the number
of values in the data set.

Variance is calculated by using the following formula:

Steps to Calculate Variance?


1) Calculate the mean of the data.
2) Find each data point's difference from the mean value.
3) Square each of these values.
4) Add up all of the squared values.
5) Divide this sum of squares by n – 1 (for a sample) or N (for the total population).

Example One
If returns for stock in Company ABC are 10% in Year 1, 20% in Year 2, and −15% in Year 3,
the average of these three returns is:
(10% + 20% + -15%) / 3 = 5%
The differences between each return and the average are:
10% - 5% = 5%
20% - 5% = 15%
-15% - 5% = -20%
Squaring these deviations yields 0.25% for Year 1, 2.25% for Year 2, and 4.00% for Year 3.

To find the variance, add these squared deviations, then divide by one less the number of points
in the dataset:
Variance = 0.25% + 2.25% + 4.00% = 6.5% / (3-1) = 3.25% = 0.0325
If you wanted to find the standard deviation of the same dataset, you would take the square root
of the variance:
Standard deviation = √0.0325 = 0.180 = 18%
Example Two: Find the variance of the numbers 3, 8, 6, 10, 12, 9, 11, 10, 12, 7.

Step 1: Compute the mean of the 10 values given.


Mean = (3+8+6+10+12+9+11+10+12+7) / 10 = 88 / 10 = 8.8
Step 2: Make a table with three columns: one for the X values, the second for the deviations,
and the third for squared deviations.
Value x x - x̅ (x - x̅ )2
3 -5.8 33.64
8 -0.8 0.64
6 -2.8 7.84
10 1.2 1.44
12 3.2 10.24
9 0.2 0.04
11 2.2 4.84
10 1.2 1.44
12 3.2 10.24
7 -1.8 3.24
Total 0 73.6
Step 3:

= 73.6 / 9
= 8.177

Example Three: Find the variance of the numbers 17, 15, 23, 7, 9, 13
Step 1: Compute the mean of the 6 values given.
Mean= (17 + 15 + 23 + 7 + 9 + 13)/6 = 14, Sample mean = x̅ = 14.
Step 2: Find the square of each deviation
Step 3: Find the sum of the squared values.
Step 4: Divide by n - 1, where n is the number of data points.
x x̅ x - x̅ (x - x̅ )2
x1 17 3 9
x2 15 1 1
x3 23 9 81
x4 7 -7 49
x5 9 -5 25
x6 13 -1 1
84 14 166
=166/(6-1)
=33.2
The variance of the sample=33.2, standard deviation = √33.2 = 5.76

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