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Notes Module 5

The document provides an overview of descriptive statistics measures of dispersion including range, interquartile range, variance, standard deviation, and coefficient of variation. It defines each measure and provides examples of how to calculate them.

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Vatsalya Bhardwaj
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© © All Rights Reserved
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7 views

Notes Module 5

The document provides an overview of descriptive statistics measures of dispersion including range, interquartile range, variance, standard deviation, and coefficient of variation. It defines each measure and provides examples of how to calculate them.

Uploaded by

Vatsalya Bhardwaj
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Module 5

DESCRIPTIVE STATISTICS
MEASURES OF DISPERSION

On-Ramp…

On our way to MBA 643

[email protected]
1
DESCRIPTIVE STATISTICS

Measures of Measures of Shape of


Location Dispersion distribution

2
Measures of
Dispersion
Measures of Dispersion are measures of variability
are used to describe the spread or dispersion of data

Dispersion

Interquartile Standard Coefficient


Range Variance
Range Deviation of Variation

3
Measures of
Dispersion
Measures of dispersion describe the variability
(spread) of a set of data

By using variability with measures of central


tendency, the result is a more complete
description of data

Dispersion explains how far data is spread apart


or disassociates from the mean

4
Range

The range is the difference between the largest


and smallest values in the data set

Usefulness:
Advantage - simple to compute
Disadvantages:
Ignores all data points except the two extremes
Influenced by extreme values
Has no reference point
Has limited use by itself

Example : 1, 3, 6, 7 ,1 range = 7-1 = 6


Interquartile Range
Interquartile Range = Q3 – Q1

• The interquartile range contains all values in the interval


between the first and third quartiles
• The interquartile range accounts for the middle 50% of values
in the ordered data set
• The interquartile range is less influenced by extremes
What is the
Interquartile range ?
24
35
17
𝑄1 =24
21
24 𝑄 3 = 4 2 .5
37
26
46
58 IQR = 42.5 – 24 = 18.5
31
32
13 The age of the middle 50% of people
12 are between 24 and 42.5 years
38
41
43
44
27
53
27
Population Variance

• Population variance is the sum of the square deviations


divided by the number of observations

• Statistics are measured in terms of square units of


measurement

• Square units of measurement are hard to interpret so


variance is typically used as a process of obtaining the
standard deviation of a data set
Sample Variance

• Sample variance is the sum of the square deviations divided


by (n-1)

• Statistics are measured in terms of square units of


measurement

• Square units of measurement are hard to interpret so


variance is typically used as a process of obtaining the
standard deviation of a data set
What is the variance?
24
35
17 We have a sample of size 20. We either use
21 a calculator or Excel.
24 Sample
37
26
46
58 =VAR.S(A1:A20)
31
32 = 160.3658
13
12
38
41 hard to interpret!
43
44
27
53
27
What is the variance?

24
35
17 Although not recommended, the sample
21 variance can be calculated using the following
24
37
short cut formula:
26
46
(∑ 𝑋 )
2
58
31 2
∑ 2
𝑋 −
𝑛
32 𝑆 =
𝑛 −1
13
12
38
We need
41
43
44 2
649
27 24107 −
53 2 20
𝑆 = =160.3658
27 𝑛 −1
Standard deviation

It is simply the square root of the population (or sample) variance

Easier to interpret in practice than the variance because it is


expressed in the original units

It measures the dispersion of the data from the mean

∑
√ √
2
( 𝑋 − 𝜇 ) or ∑(𝑋 −𝑋) 2
𝜎= 𝑆=
𝑁 𝑛−1
=STDEV.P(A1:A20) =STDEV.S(A1:A20)

Sample standard deviation S is used as a good


estimator of the population standard deviation σ
Standard deviation
24
35
17 We have a sample of size 20. We
21 either use a calculator or Excel or take
24
37
the square root of the sample variance
26
46

𝑆= √ 𝑆 = √160.3658=𝟏𝟐. 𝟔𝟔𝟑𝟔 𝒚𝒆𝒂𝒓𝒔


58 2
31
32
13
12
38
41
43
44
27
53
27
Standard deviation

 The standard deviation is often used as an


indicator of financial risk

 The standard deviation is often used in


Quality Control charts to identify if the
process is in control
Measures of Variation

 The more the data are spread out, the greater the range,
variance, and standard deviation.

 The more the data are concentrated, the smaller the range,
variance, and standard deviation.

 If the values are all the same (no variation), all these measures
will be zero.

 None of these measures are ever negative

 The range, the variance and the standard deviation are


sensitive to extreme values
Coefficients of Variation
𝑪𝑽 =
𝑺
𝑿 ( )
∗𝟏𝟎𝟎 %

• Measures relative variation


• Always in percentage (%) (percentage of the
mean)
• Shows variation relative to mean
• Can be used to compare the variability of two
or more sets of data measured in different
units
• household incomes in two cities
• employee absenteeism at two plants
Example 𝑪𝑽 =
𝑺
𝑿( )
∗𝟏𝟎𝟎 %

• Stock A:
– Average price last year = $50 =10%
– Standard deviation = $5
• Stock B:
– Average price last year = $100
=5%
– Standard deviation = $5
• Stock C:
– Average price last year = $8
=25%
– Standard deviation = $2

Which stock has the largest variation relative to its price?


Another Measure of Dispersion
Mean Absolute Deviation MAD
MAD is another measure of dispersion mainly used in time series
24 |24-32.45|
35 |35-32.45| MAD = 𝑋 =32.45
17
21
24
37 .
26 . MAD = (8.45+2.55+…+5.45)/20=10.295
46 .
58 Using EXCEL =AVEDEV(A1:A20)
31
32
13 Note: Often the standard deviation is
12 25% larger than the MAD.
38
41
43 S= 12.6636,
44 1.25*MAD = 1.25*10.295 =12.8688
27
53
Not too far
|27-32.45|
27
Review Test

19

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