Analysis ToolPak

The Analysis ToolPak is an Excel add-in program that provides data analysis tools for financial, statistical
and engineering data analysis.
To load the Analysis ToolPak add-in, execute the following steps.

1. On the File tab, click Options.

2. Under Add-ins, select Analysis ToolPak and click on the Go button.

3. Check Analysis ToolPak and click on OK.

4. On the Data tab, in the Analysis group, you can now click on Data Analysis.

The following dialog box below appears.

5. For example, select Histogram and click OK to create a Histogram in Excel.

Histogram
This example teaches you how to create a histogram in Excel.
1. First, enter the bin numbers (upper levels) in the range C4:C8.
2. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
3. Select Histogram and click OK.

4. Select the range A2:A19.

5. Click in the Bin Range box and select the range C4:C8.

6. Click the Output Range option button, click in the Output Range box and select cell F3.

7. Check Chart Output.

8. Click OK.

9. Click the legend on the right side and press Delete.

10. Properly label your bins.

11. To remove the space between the bars, right click a bar, click Format Data Series and change the Gap
Width to 0%.

12. To add borders, right click a bar, click Format Data Series, click the Fill & Line icon, click Border and
select a color.

Result:
If you have Excel 2016 or later, simply use the Histogram chart type.

13. Select the range A1:A19.

14. On the Insert tab, in the Charts group, click the Histogram symbol.

15. Click Histogram.

Result. A histogram with 3 bins.

Note: Excel uses Scott's normal reference rule for calculating the number of bins and the bin width.

16. Right click the horizontal axis, and then click Format Axis.

The Format Axis pane appears.

17. Define the histogram bins. We'll use the same bin numbers as before (see first picture on this page).
Bin width: 5. Number of bins: 6. Overflow bin: 40. Underflow bin: 20.
Result:

Recall, we created the following histogram using the Analysis ToolPak (steps 1-12).
Conclusion: the bin labels look different, but the histograms are the same. ≤20 is the same as 0-20, (20, 25]
is the same as 21-25, etc.

Descriptive Statistics
You can use the Analysis Toolpak add-in to generate descriptive statistics. For example, you may have the
scores of 14 participants for a test.

To generate descriptive statistics for these scores, execute the following steps.

1. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
2. Select Descriptive Statistics and click OK.

3. Select the range A2:A15 as the Input Range.

4. Select cell C1 as the Output Range.

5. Make sure Summary statistics is checked.

6. Click OK.

Result:
Anova
This example teaches you how to perform a single factor ANOVA (analysis of variance) in Excel. A single
factor or one-way ANOVA is used to test the null hypothesis that the means of several populations are all
equal.
Below you can find the salaries of people who have a degree in economics, medicine or history.

H0: μ1 = μ2 = μ3
H1: at least one of the means is different.

To perform a single factor ANOVA, execute the following steps.

1. On the Data tab, in the Analysis group, click Data Analysis.
Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
2. Select Anova: Single Factor and click OK.

3. Click in the Input Range box and select the range A2:C10.

4. Click in the Output Range box and select cell E1.

5. Click OK.

Result:
Conclusion: if F > F crit, we reject the null hypothesis. This is the case, 15.196 > 3.443. Therefore, we
reject the null hypothesis. The means of the three populations are not all equal. At least one of the means is
different. However, the ANOVA does not tell you where the difference lies. You need a t-Test to test each
pair of means.

F-Test
This example teaches you how to perform an F-Test in Excel. The F-Test is used to test the null hypothesis
that the variances of two populations are equal.
Below you can find the study hours of 6 female students and 5 male students.

H0: σ12 = σ22

H1: σ12 ≠ σ22

To perform an F-Test, execute the following steps.

1. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
2. Select F-Test Two-Sample for Variances and click OK.

3. Click in the Variable 1 Range box and select the range A2:A7.
4. Click in the Variable 2 Range box and select the range B2:B6.
5. Click in the Output Range box and select cell E1.

6. Click OK.

Result:

Important: be sure that the variance of Variable 1 is higher than the variance of Variable 2. This is the case,
160 > 21.7. If not, swap your data. As a result, Excel calculates the correct F value, which is the ratio of
Variance 1 to Variance 2 (F = 160 / 21.7 = 7.373).
Conclusion: if F > F Critical one-tail, we reject the null hypothesis. This is the case, 7.373 > 6.256.
Therefore, we reject the null hypothesis. The variances of the two populations are unequal.

t-Test
This example teaches you how to perform a t-Test in Excel. The t-Test is used to test the null hypothesis
that the means of two populations are equal.
Below you can find the study hours of 6 female students and 5 male students.

H0: μ1 - μ2 = 0
H1: μ1 - μ2 ≠ 0

To perform a t-Test, execute the following steps.

1. First, perform an F-Test to determine if the variances of the two populations are equal. This is not the
case.
2. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
3. Select t-Test: Two-Sample Assuming Unequal Variances and click OK.

4. Click in the Variable 1 Range box and select the range A2:A7.
5. Click in the Variable 2 Range box and select the range B2:B6.
6. Click in the Hypothesized Mean Difference box and type 0 (H0: μ1 - μ2 = 0).
7. Click in the Output Range box and select cell E1.

8. Click OK.

Result:

Conclusion: We do a two-tail test (inequality). lf t Stat < -t Critical two-tail or t Stat > t Critical two-tail,
we reject the null hypothesis. This is not the case, -2.365 < 1.473 < 2.365. Therefore, we do not reject the
null hypothesis. The observed difference between the sample means (33 - 24.8) is not convincing enough
to say that the average number of study hours between female and male students differ significantly.

Moving Average
This example teaches you how to calculate the moving average of a time series in Excel. A moving
average is used to smooth out irregularities (peaks and valleys) to easily recognize trends.
1. First, let's take a look at our time series.
2. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
3. Select Moving Average and click OK.

4. Click in the Input Range box and select the range B2:M2.

5. Click in the Interval box and type 6.

6. Click in the Output Range box and select cell B3.

7. Click OK.
8. Plot a graph of these values.

Explanation: because we set the interval to 6, the moving average is the average of the previous 5 data
points and the current data point. As a result, peaks and valleys are smoothed out. The graph shows an
increasing trend. Excel cannot calculate the moving average for the first 5 data points because there are not
enough previous data points.

9. Repeat steps 2 to 8 for interval = 2 and interval = 4.

Conclusion: The larger the interval, the more the peaks and valleys are smoothed out. The smaller the
interval, the closer the moving averages are to the actual data points.

Exponential Smoothing
This example teaches you how to apply exponential smoothing to a time series in Excel. Exponential
smoothing is used to smooth out irregularities (peaks and valleys) to easily recognize trends.
1. First, let's take a look at our time series.
2. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
3. Select Exponential Smoothing and click OK.

4. Click in the Input Range box and select the range B2:M2.

5. Click in the Damping factor box and type 0.9. Literature often talks about the smoothing constant α
(alpha). The value (1- α) is called the damping factor.

6. Click in the Output Range box and select cell B3.

7. Click OK.
8. Plot a graph of these values.

Explanation: because we set alpha to 0.1, the previous data point is given a relatively small weight while
the previous smoothed value is given a large weight (i.e. 0.9). As a result, peaks and valleys are smoothed
out. The graph shows an increasing trend. Excel cannot calculate the smoothed value for the first data point
because there is no previous data point. The smoothed value for the second data point equals the previous
data point.

9. Repeat steps 2 to 8 for alpha = 0.3 and alpha = 0.8.

Conclusion: The smaller alpha (larger the damping factor), the more the peaks and valleys are smoothed
out. The larger alpha (smaller the damping factor), the closer the smoothed values are to the actual data
points.

Correlation
The correlation coefficient (a value between -1 and +1) tells you how strongly two variables are related to
each other. We can use the CORREL function or the Analysis Toolpak add-in in Excel to find the
correlation coefficient between two variables.
- A correlation coefficient of +1 indicates a perfect positive correlation. As variable X increases, variable
Y increases. As variable X decreases, variable Y decreases.
- A correlation coefficient of -1 indicates a perfect negative correlation. As variable X increases, variable Z
decreases. As variable X decreases, variable Z increases.

- A correlation coefficient near 0 indicates no correlation.

To use the Analysis Toolpak add-in in Excel to quickly generate correlation coefficients between multiple
variables, execute the following steps.

1. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
2. Select Correlation and click OK.
3. For example, select the range A1:C6 as the Input Range.

4. Check Labels in first row.

5. Select cell A8 as the Output Range.

6. Click OK.

Result.
Conclusion: variables A and C are positively correlated (0.91). Variables A and B are not correlated (0.19).
Variables B and C are also not correlated (0.11) . You can verify these conclusions by looking at the graph.

Regression
R Square | Significance F and P-Values | Coefficients | Residuals
This example teaches you how to run a linear regression analysis in Excel and how to interpret the
Summary Output.
Below you can find our data. The big question is: is there a relation between Quantity Sold (Output) and
Price and Advertising (Input). In other words: can we predict Quantity Sold if we know Price and
Advertising?

1. On the Data tab, in the Analysis group, click Data Analysis.

Note: can't find the Data Analysis button? Click here to load the Analysis ToolPak add-in.
2. Select Regression and click OK.

3. Select the Y Range (A1:A8). This is the predictor variable (also called dependent variable).
4. Select the X Range(B1:C8). These are the explanatory variables (also called independent variables).
These columns must be adjacent to each other.
5. Check Labels.

6. Click in the Output Range box and select cell A11.

7. Check Residuals.

8. Click OK.

Excel produces the following Summary Output (rounded to 3 decimal places).

R Square
R Square equals 0.962, which is a very good fit. 96% of the variation in Quantity Sold is explained by the
independent variables Price and Advertising. The closer to 1, the better the regression line (read on) fits the
data.
Significance F and P-values
To check if your results are reliable (statistically significant), look at Significance F (0.001). If this value is
less than 0.05, you're OK. If Significance F is greater than 0.05, it's probably better to stop using this set of
independent variables. Delete a variable with a high P-value (greater than 0.05) and rerun the regression
until Significance F drops below 0.05.

Most or all P-values should be below below 0.05. In our example this is the case. (0.000, 0.001 and 0.005).

Coefficients
The regression line is: y = Quantity Sold = 8536.214 -835.722 * Price + 0.592 * Advertising. In other
words, for each unit increase in price, Quantity Sold decreases with 835.722 units. For each unit increase
in Advertising, Quantity Sold increases with 0.592 units. This is valuable information.

You can also use these coefficients to do a forecast. For example, if price equals $4 and Advertising equals
$3000, you might be able to achieve a Quantity Sold of 8536.214 -835.722 * 4 + 0.592 * 3000 = 6970.

Residuals
The residuals show you how far away the actual data points are fom the predicted data points (using the
equation). For example, the first data point equals 8500. Using the equation, the predicted data point equals
8536.214 -835.722 * 2 + 0.592 * 2800 = 8523.009, giving a residual of 8500 - 8523.009 = -23.009.
You can also create a scatter plot of these residuals.