Slides On Descriptive Statistics

Descriptive Statistics
2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
What is Statistics?
Statistics is a way to get information from data.
What is Statistics?
Statistics is a way to get information from data

Statistics
Data Information
Statistics is a tool for creating new understanding from a set of numbers.
Definitions: Oxford English Dictionary

Statistical Techniques/Methods
Formulate Get some Visualize the

problem data data
Do some Interpret
statistical results
calculations
Descriptive statistics deals with methods of organizing,
summarizing, and presenting data in a convenient and
informative way.
One form of descriptive statistics uses graphical techniques,

which allow statistics practitioners to present data in ways that
make it easy for the reader to extract useful information.
Chapter 2 introduces several graphical methods.
Another form of descriptive statistics uses numerical
techniques to summarize data.
The mean and median are popular numerical techniques to

describe the location of the data.
The range, variance, and standard deviation measure the

variability of the data
Chapter 4 introduces several numerical statistical measures

that describe different features of the data.
Inferential statistics
The information we would like to acquire in the Case is an
estimate of annual profits from the exclusivity agreement. The
data are the numbers of cans of soft drinks consumed in 7 days
by the 500 students in the sample.
We want to know the mean number of soft drinks consumed

by all 50,000 students on campus.
To accomplish this goal we need another branch of statistics-

inferential statistics.
Inferential statistics
Inferential statistics is a body of methods used to draw
conclusions or inferences about characteristics of populations
based on sample data. The population in question in this case
is the soft drink consumption of the university's 50,000
students. The cost of interviewing each student would be
prohibitive and extremely time consuming. Statistical
techniques make such endeavors unnecessary. Instead, we can
sample a much smaller number of students (the sample size is
500) and infer from the data the number of soft drinks
consumed by all 50,000 students. We can then estimate annual
profits for Cola.
Key Statistical Concepts
Population
a population is the group of all items of interest to
a statistics practitioner.
frequently very large; sometimes infinite.
E.g. All cola users
Sample
A sample is a set of data drawn from the
population.
Potentially very large, but less than the population.
E.g. a sample of drinkers
Parameter
A descriptive measure of a population.
Statistic
A descriptive measure of a sample.
Population Sample
Subset
Statistic
Parameter
Populations have Parameters,
Samples have Statistics.
are methods of organizing, summarizing, and presenting
data in a convenient and informative way. These methods
include:
Graphical Techniques (Chapter 2), and
Numerical Techniques (Chapter 4).
The actual method used depends on what information we
would like to extract. Are we interested in
measure(s) of central location? and/or
measure(s) of variability (dispersion)?
Descriptive Statistics helps to answer these questions
Inferential Statistics
Descriptive Statistics describe the data set thats being
analyzed, but doesnt allow us to draw any conclusions or
make any interferences about the data. Hence we need
another branch of statistics: inferential statistics.
Inferential statistics is also a set of methods, but it is used to

draw conclusions or inferences about characteristics of
populations based on data from a sample.
Statistical Inference
Statistical inference is the process of making an estimate,
prediction, or decision about a population based on a sample.
Population
Sample
Inference
Statistic
Parameter
What can we infer about a Populations Parameters

based on a Samples Statistics?
Statistical Inference
We use statistics to make inferences about parameters.
Therefore, we can make an estimate, prediction, or decision

about a population based on sample data.
Thus, we can apply what we know about a sample to the

larger population from which it was drawn!
Types of Data
Cross-sectional data
Data collected by recording a characteristic of many subjects
at the same point in time, or without regard to differences in
time.
Subjects might include individuals, households, firms,
industries, regions, and countries.
LO 1.3
Types of Data
Time series data

Data collected by recording a characteristic of a subject over
several time periods.
Data can include daily, weekly, monthly, quarterly, or
annual observations.
This graph plots the
U.S. GDP growth rate
from 1980 to 2010 - it
is an example of time
series data.
LO 1.3
Variables and Scales of Measurement
Describe variables and various types of measurement scales.
A variable is the general characteristic being

observed on an object of interest.
Types of Variables
Qualitative gender, race, political affiliation
Quantitative test scores, age, weight
Discrete
Continuous
Types of Quantitative Variables

Discrete
A discrete variable assumes a countable
number of distinct values.
Examples: Number of children in a family,
number of points scored in a basketball
game.
LO 1.4
Types of Quantitative Variables

Continuous
A continuous variable can assume an
infinite number of values within some
interval.
Examples: Weight, height, investment
return.
LO 1.4
Scales of Measure
- Nominal
Qualitative
- Ordinal
- Ratio Quantitative
LO 1.4
The Nominal Data

Data are simply categories for grouping the data.
Qualitative values may be

converted
to quantitative values for
analysis purposes.
LO 1.4
The Ordinal Scale

Ordinal data may be categorized and ranked with respect to
some characteristic or trait.
For example, instructors are often evaluated on an ordinal scale
(excellent, good, fair, poor).
Differences between categories are meaningless because the

actual numbers used may be arbitrary.
There is no objective way to interpret the difference between instructor
quality.
LO 1.4
The Ratio Scale

The strongest level of measurement.
Differences between values are equal and meaningful.
There is an absolute 0 or defined starting point. 0 does
mean the absence of Thus, meaningful ratios may be
obtained.
LO 1.4
The Ratio Scale

The following variables are measured on a ratio scale:
General Examples: Weight, Time, and Distance
Business Examples: Sales, Profits, and Inventory Levels
LO 1.4
Hierarchy of Data
Ratio
Values are real numbers.
All calculations are valid.
Data may be treated as ordinal or nominal.
Ordinal
Values must represent the ranked order of the data.
Calculations based on an ordering process are valid.
Nominal
Values are the arbitrary numbers that represent categories.
Only calculations based on the frequencies of occurrence are valid.
Data can not be treated as ordinal or ratio.
Graphical & Tabular Techniques for Nominal Data
The only allowable calculation on nominal data is to count
the frequency of each value of the variable.
We can summarize the data in a table that presents the

categories and their counts called a frequency distribution.
A relative frequency distribution lists the categories and the

proportion with which each occurs.
Example 2.1 Work Status in the GSS 2012 Survey
[GSS2012*] In Chapter 1 we briefly introduced the General Social Survey.
In the 2012 survey respondents were asked the following question.
Last week were you working full time, part time, going to school, keeping
house, or what? The responses were
1. Working full time
2. Working part time
3. Temporarily not working
4. Unemployed, laid off
5. Retired
6. School
7. Keeping house
8. Other
The responses were recorded using the codes 1, 2, 3, 4, 5, 6, 7, and 8,
respectively.
Frequency and Relative Frequency Distributions
Work Status Code Frequency Percentage Frequency (%)

Working full-time 1 912 46.2
Working part-time 2 226 11.5
Temporarily not working 3 40 2.0
Unemployed, laid off 4 104 5.3
Retired 5 357 18.1
School 6 70 3.5
Keeping house 7 210 10.6
Other 8 54 2.7
Nominal Data (Frequency)
Bar Chart
1000
912
900
800
700
600
500
400 357
300
226 210
200
104
100 70 54
40
0
1 2 3 4 5 6 7 8
WRKSTAT
Bar Charts are often used to display frequencies

Nominal Data (Relative Frequency)
Pie Chart
8, 2.7%
7, 10.6%
6, 3.5%
1, 46.2%
5, 18.1%
4, 5.3%
3, 2.0%
2, 11.5%
Pie Charts show relative frequencies

Nominal Data
Bar Chart
It all the same information,
1000 912
900
800
700
600
(based on the same data).
500
400 357 Just different presentation.
300 226 210
200 104
40 70 54
100
0
1 2 3 4 5 6 7 8
WRKSTAT
Pie Chart
8, 2.7%
7,
6, 3.5% 10.6%
1, 46.2%
5, 18.1%
4, 5.3% 2, 11.5%
3, 2.0%
Describing the Relationship between Two Nominal Variables
To describe the relationship between two nominal variables, we must
remember that we are permitted only to determine the frequency of the
values. As a first step we need to produce a cross-classification table,
which lists the frequency of each combination of the values of the two
variables
Problem
One Chocolate manufacturing company sells quality chocolate products at
its plant and retail stores. Two years ago, the company developed a Web
site and began selling its products over the Internet. Web site have
exceeded the companys expectations, and management is now considering
strategies to increase sales even further. To learn more about the Web site
customers, a sample of 50 Chocolate transactions was selected from the
previous months sales.
Data showing
the day of the week each transaction was made,
the type of browser the customer used,
the time spent on the Web site,
the number of Web site pages viewed,
the amount spent by each of the 50 customers.
Box Plot
Example 3.1
Following deregulation of telephone service, several new
companies were created to compete in the business of
providing long-distance telephone service. In almost all
cases these companies competed on price since the service
each offered is similar. Pricing a service or product in the
face of stiff competition is very difficult. Factors to be
considered include supply, demand, price elasticity, and the
actions of competitors. Long-distance packages may employ
per-minute charges, a flat monthly rate, or some combination
of the two. Determining the appropriate rate structure is
facilitated by acquiring information about the behaviors of
customers and in particular the size of monthly long-distance
bills.
Example 3.1
As part of a larger study, a long-distance company wanted to
acquire information about the monthly bills of new
subscribers in the first month after signing with the
company. The companys marketing manager conducted a
survey of 200 new residential subscribers wherein the first
months bills were recorded. These data are stored in file
Xm03-01. The general manager planned to present his
findings to senior executives. What information can be
extracted from these data?
Example 3.1
We have chosen eight classes defined in such a way that each
observation falls into one and only one class. These classes are defined
as follows:
Classes
Amounts that are less than or equal to 15
Amounts that are more than 15 but less than or equal to 30
Example 3.1
Histogram
80
70
60
Frequency
50
40
30
20
10
0
15 30 45 60 75 90 105 120
Bills
Interpret
(18+28+14=60)200 = 30%
about half (71+37=108)
i.e. nearly a third of the phone bills
of the bills are small,
are $90 or more.
i.e. less than $30
There are only a few telephone

bills in the middle range.
Building a Histogram
1) Collect the Data
2) Create a frequency distribution for the data
How?
a) Determine the number of classes to use
How?
Refer to table 3.2:
With 200 observations,
we should have
between 7 & 10
classes
Alternative, we could use Sturges formula:

Number of class intervals = 1 + 3.3 log (n)
1) Collect the Data
2) Create a frequency distribution for the data
How?
a) Determine the number of classes to use. [8]
b) Determine how large to make each class
How?
Look at the range of the data, that is,
Range = Largest Observation Smallest Observation
Range = $119.63 $0 = $119.63
Then each class width becomes:
Range (# classes) = 119.63 8 15
Shapes of Histograms
Symmetry
A histogram is said to be symmetric if, when we draw a
vertical line down the center of the histogram, the two sides
are identical in shape and size:
Frequency
Frequency
Frequency
Variable Variable Variable
Skewness
A skewed histogram is one with a long tail extending to
either the right or the left:
Frequency
Frequency
Variable Variable
Positively Skewed Negatively Skewed
Modality
A unimodal histogram is one with a single peak, while a
bimodal histogram is one with two peaks:
Bimodal
Unimodal
Frequency
Frequency
Variable Variable
A modal class is the class with

the largest number of observations
Bell Shape
A special type of symmetric unimodal histogram is one that
is bell shaped:
Frequency
Many statistical techniques

require that the population
be bell shaped.
Variable
Drawing the histogram

helps verify the shape of
the population in question. Bell Shaped
Histogram Comparison
Compare & contrast the following histograms based on data
from Ex. 3.3 & Ex. 3.4:
The two courses, Business Statistics
and Mathematical Statistics have very
unimodal vs. bimodal different histograms
Ogive
(pronounced Oh-jive) is a graph of
a cumulative frequency distribution.
We create an ogive in three steps
First, from the frequency distribution created earlier,

calculate relative frequencies:
Relative Frequency = # of observations in a class

Total # of observations
Relative Frequencies
For example, we had 71 observations in our first class
(telephone bills from $0.00 to $15.00). Thus, the relative
frequency for this class is 71 200 (the total # of phone
bills) = 0.355 (or 35.5%)
Ogive
Is a graph of a cumulative frequency distribution.
We create an ogive in three steps

1) Calculate relative frequencies.
2) Calculate cumulative relative frequencies by adding the
current class relative frequency to the previous class
cumulative relative frequency.
(For the first class, its cumulative relative frequency is just its relative frequency)
Cumulative Relative Frequencies
first class
:
:
Ogive
Is a graph of a cumulative frequency distribution.
1) Calculate relative frequencies.
2) Calculate cumulative relative frequencies.
3) Graph the cumulative relative frequencies
Ogive
The ogive can be used to

answer questions like:
What telephone bill value

is at the 50th percentile?
around $35
(Refer also to Fig. 2.13 in your textbook)
Numerical Descriptive Techniques
Measures of Central Location
Mean, Median, Mode
Measures of Variability
Range, Standard Deviation, Variance, Coefficient of Variation
Measures of Relative Standing

Percentiles, Quartiles
Measures of Linear Relationship

Covariance, Correlation, Determination, Least Squares Line
The arithmetic mean, a.k.a. average, shortened to mean, is
the most popular & useful measure of central location.
It is computed by simply adding up all the observations and

dividing by the total number of observations:
Sum of the observations

Mean =
Number of observations
Notation
When referring to the number of observations in a
population, we use uppercase letter N
When referring to the number of observations in a

sample, we use lower case letter n
The arithmetic mean for a population is denoted with Greek

letter mu:
The arithmetic mean for a sample is denoted with an

x-bar:
Arithmetic Mean
Sample Mean
Population Mean
The Arithmetic Mean
is appropriate for describing measurement data, e.g.
heights of people, marks of student papers, etc.
is seriously affected by extreme values called outliers.

E.g. as soon as a billionaire moves into a neighborhood, the
average household income increases beyond what it was
previously!
The median is calculated by placing all the observations in
order; the observation that falls in the middle is the median.
Data: {0, 7, 12, 5, 14, 8, 0, 9, 22} N=9 (odd)

Sort them bottom to top, find the middle:
0 0 5 7 8 9 12 14 22
Data: {0, 7, 12, 5, 14, 8, 0, 9, 22, 33} N=10 (even)
Sort them bottom to top, the middle is the

simple average between 8 & 9:
0 0 5 7 8 9 12 14 22 33
median = (8+9)2 = 8.5
Sample and population medians are computed the same way.
The mode of a set of observations is the value that occurs
most frequently.
A set of data may have one mode (or modal class), or two, or
more modes.
Mode is a useful for all data types, though mainly used for
nominal data.
For large data sets the modal class is much more relevant
than a single-value mode.
Sample and population modes are computed the same way.

Mode
E.g. Data: {0, 7, 12, 5, 14, 8, 0, 9, 22, 33} N=10
Which observation appears most often?

The mode for this data set is 0. How is this a measure of
central location?
A modal class
Frequency
Variable
=MODE(range) in Excel
Note: if you are using Excel for your data analysis and your
data is multi-modal (i.e. there is more than one mode), Excel
only calculates the smallest one.
You will have to use other techniques (i.e. histogram) to

determine if your data is bimodal, trimodal, etc.
Mean, Median, Mode
If a distribution is symmetrical,
the mean, median and mode may coincide
median
mode
mean
Mean, Median, Mode
If a distribution is asymmetrical, say skewed to the left or to
the right, the three measures may differ. E.g.:
median
mode
mean
Mean, Median, Mode: Which Is Best?
With three measures from which to choose, which one
should we use?
The mean is generally our first selection. However, there are

several circumstances when the median is better.
The mode is seldom the best measure of central location.
One advantage the median holds is that it not as sensitive to

extreme values as is the mean.
To illustrate, consider the data in Example 4.1.
The mean was 11.0 and the median was 8.5.
Now suppose that the respondent who reported 33 hours

actually reported 133 hours (obviously an Internet addict).
The mean becomes
n
x
i 1
i
0 7 12 5 133 14 8 0 22 210
x 21.0
n 10 10
This value is only exceeded by only two of the ten
observations in the sample, making this statistic a poor
measure of central location.
The median stays the same. When there is a relatively small

number of extreme observations (either very small or very
large, but not both), the median usually produces a better
measure of the center of the data.
Mean, Median, & Modes for Ordinal & Nominal Data
For ordinal and nominal data the calculation of the mean is
not valid.
Median is appropriate for ordinal data.
For nominal data, a mode calculation is useful for

determining highest frequency but not central location.
Measures of Central Location Summary
Compute the Mean to
Describe the central location of a single set of interval
data
Compute the Median to

Describe the central location of a single set of interval or
ordinal data
Compute the Mode to

Describe a single set of nominal data
Measures of Variability
Measures of central location fail to tell the whole story about
the distribution; that is, how much are the observations
spread out around the mean value?
For example, two sets of class

grades are shown. The mean
(=50) is the same in each case
But, the red class has greater

variability than the blue class.
Range
The range is the simplest measure of variability, calculated
as:
Range = Largest observation Smallest observation
E.g.
Data: {4, 4, 4, 4, 50} Range = 46
Data: {4, 8, 15, 24, 39, 50} Range = 46
The range is the same in both cases,
but the data sets have very different distributions
Range
Its major advantage is the ease with which it can be
computed.
Its major shortcoming is its failure to provide information on

the dispersion of the observations between the two end
points.
Hence we need a measure of variability that incorporates

all the data and not just two observations. Hence
Variance
Variance and its related measure, standard deviation, are
arguably the most important statistics. Used to measure
variability, they also play a vital role in almost all statistical
inference procedures.
Population variance is denoted by

(Lower case Greek letter sigma squared)
Sample variance is denoted by

(Lower case S squared)
Variance
population mean
The variance of a population is:

population size
sample mean
The variance of a sample is:
Note: The denominator is sample size (n) minus one !
Variance
As you can see, you have to calculate the sample mean (x-
bar) in order to calculate the sample variance.
Alternatively, there is a short-cut formulation to calculate

sample variance directly from the data without the
intermediate step of calculating the mean. Its given by:
Application
Example 4.7. The following sample consists of the number
of jobs six students applied for: 17, 15, 23, 7, 9, 13.
Finds its mean and variance.
What are we looking to calculate?
The following sample consists of the number of jobs six

students applied for: 17, 15, 23, 7, 9, 13.
Finds its mean and variance.
as opposed to or 2
Sample Mean & Variance
Sample Mean
Sample Variance
Sample Variance (shortcut method)
Standard Deviation
The standard deviation is simply the square root of the
variance, thus:
Population standard deviation:
Sample standard deviation:
Standard Deviation
Consider Example 4.8 [Xm04-08]where a golf club manufacturer has
designed a new club and wants to determine if it is hit more
consistently (i.e. with less variability) than with an old club.
Using Data > Data Analysis > Descriptive Statistics in Excel, we

produce the following tables for interpretation
You get more

consistent
distance with the
new club.
Interpreting Standard Deviation
The standard deviation can be used to compare the variability of
several distributions and make a statement about the general shape
of a distribution. If the histogram is bell shaped, we can use the
Empirical Rule, which states:
1) Approximately 68% of all observations fall within one standard

deviation of the mean.
2) Approximately 95% of all observations fall within two standard
deviations of the mean.
3) Approximately 99.7% of all observations fall within three standard
deviations of the mean.
The Empirical Rule
Approximately 68% of all observations fall
within one standard deviation of the mean.
Approximately 95% of all observations fall

within two standard deviations of the mean.
Approximately 99.7% of all observations fall

within three standard deviations of the mean.
Chebysheffs Theorem
A more general interpretation of the standard deviation is
derived from Chebysheffs Theorem, which applies to all
shapes of histograms (not just bell shaped).
The proportion of observations in any sample that lie

within k standard deviations of the mean is at least:
For k=2 (say), the theorem states

that at least 3/4 of all observations
lie within 2 standard deviations of
the mean. This is a lower bound
compared to Empirical Rules
approximation (95%).
Interpreting Standard Deviation
Suppose that the mean and standard deviation of last years
midterm test marks are 70 and 5, respectively. If the
histogram is bell-shaped then we know that approximately
68% of the marks fell between 65 and 75, approximately
95% of the marks fell between 60 and 80, and approximately
99.7% of the marks fell between 55 and 85.
If the histogram is not at all bell-shaped we can say that at

least 75% of the marks fell between 60 and 80, and at least
88.9% of the marks fell between 55 and 85. (We can use
other values of k.)
Coefficient of Variation
The coefficient of variation of a set of observations is the
standard deviation of the observations divided by their mean,
that is:
Population coefficient of variation = CV =
Sample coefficient of variation = cv =
Coefficient of Variation
This coefficient provides a
proportionate measure of variation, e.g.
A standard deviation of 10 may be perceived as large when

the mean value is 100, but only moderately large when the
mean value is 500.
Measures of Relative Standing & Box Plots
Measures of relative standing are designed to provide
information about the position of particular values relative to
the entire data set.
Percentile: the Pth percentile is the value for which P percent

are less than that value and (100-P)% are greater than that
value.
Suppose you scored in the 60th percentile on the GMAT, that
means 60% of the other scores were below yours, while 40% of
scores were above yours.
Quartiles
We have special names for the 25th, 50th, and 75th
percentiles, namely quartiles.
The first or lower quartile is labeled Q1 = 25th percentile.
The second quartile, Q2 = 50th percentile (which is also the

median).
The third or upper quartile, Q3 = 75th percentile.
We can also convert percentiles into quintiles (fifths) and deciles (tenths).
Commonly Used Percentiles
First (lower) decile = 10th percentile
First (lower) quartile, Q1, = 25th percentile
Second (middle)quartile,Q2, = 50th percentile
Third quartile, Q3, = 75th percentile
Ninth (upper) decile = 90th percentile
Note: If your exam mark places you in the 80th percentile,

that doesnt mean you scored 80% on the exam it means
that 80% of your peers scored lower than you on the exam;
It is about your position relative to others.
Location of Percentiles
The following formula allows us to approximate the location
of any percentile:
Recall the data from Example 4.1:
0 0 5 7 8 9 12 14 22 33
Where is the location of the 25th percentile? That is, at

which point are 25% of the values lower and 75% of the
values higher?
0 0 5 7 8 9 12 14 22 33
L25 = (10+1)(25/100) = 2.75
The 25th percentile is three-quarters of the distance between the second

(which is 0) and the third (which is 5) observations. Three-quarters of the
distance is: (.75)(5 0) = 3.75
Because the second observation is 0, the 25th percentile is 0 + 3.75 = 3.75
What about the upper quartile?
L75 = (10+1)(75/100) = 8.25
0 0 5 7 8 9 12 14 22 33
It is located one-quarter of the distance between the eighth and the ninth
observations, which are 14 and 22, respectively. One-quarter of the distance
is: (.25)(22 - 14) = 2, which means the 75th percentile is at: 14 + 2 = 16
Please remember
position
2.75 16
0 0 | 5 7 8 9 12 14 | 22 33
position
3.75 8.25
Lp determines the position in the data set where the percentile value lies,
not the value of the percentile itself.
Interquartile Range
The quartiles can be used to create another measure of
variability, the interquartile range, which is defined as
follows:
Interquartile Range = Q3 Q1
The interquartile range measures the spread of the middle

50% of the observations.
Large values of this statistic mean that the 1st and 3rd
quartiles are far apart indicating a high level of variability.
Box Plots
The box plot is a technique that graphs five statistics:
the minimum and maximum observations, and
Whisker
Whisker (1.5*(Q3Q1))
the first, second, and third quartiles.

The lines extending to the left and right are called whiskers. Any points that lie outside
the whiskers are called outliers. The whiskers extend outward to the smaller of 1.5
times the interquartile range or to the most extreme point that is not an outlier.
Example 4.15
A large number of fast-food restaurants with drive-through
windows offering drivers and their passengers the
advantages of quick service. To measure how good the
service is, an organization called QSR planned a study
wherein the amount of time taken by a sample of drive-
through customers at each of five restaurants was recorded.
Compare the five sets of data using a box plot and interpret
the results.
Box Plots
These box plots are based on
data in Xm04-15.
Wendys service time is

shortest and least variable.
Hardees has the greatest

variability, while Jack-in-
the-Box has the longest
service times.
3.5 Mean-Variance Analysis and
the Sharpe Ratio
Explain mean-variance analysis and the Sharpe Ratio.
Mean-variance analysis:
The performance of an asset is measured by its rate of return.
The rate of return may be evaluated in terms of its reward
(mean) and risk (variance).
Higher average returns are often associated with higher risk.
The Sharpe ratio uses the mean and variance to
evaluate risk.
LO 3.5
Mean-Variance Analysis and
the Sharpe Ratio
Sharpe Ratio
Measures the extra reward per unit of risk.
For an investment , the Sharpe ratio is computed as:
x R
Sharpe Ratio
s
where is the mean return for the investment
is the mean return for a risk-free asset
is the standard deviation for the investment
LO 3.5
Mean-Variance Analysis and
the Sharpe Ratio
Sharpe Ratio Example
Compute the Sharpe ratios for the Metals and Income funds
given the risk free return of 4%.
Since 0.56 > 0.41, the Metals fund offers more reward per unit
of risk as compared to the Income fund.
LO 3.5
Parameters and Statistics
Population Sample
Size N n
Mean
Variance S2
Standard
Deviation S
Coefficient of
Variation CV cv
Covariance Sxy
Coefficient of
Correlation r

Slides On Descriptive Statistics

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Slides On Descriptive Statistics

Uploaded by

Copyright:

Available Formats

Descriptive Statistics

Statistics is a way to get information from data.

Statistics is a way to get information from data

Statistics is a tool for creating new understanding from a set of numbers.

Definitions: Oxford English Dictionary

Formulate Get some Visualize the

One form of descriptive statistics uses graphical techniques,

Chapter 2 introduces several graphical methods.

The mean and median are popular numerical techniques to

The range, variance, and standard deviation measure the

Chapter 4 introduces several numerical statistical measures

We want to know the mean number of soft drinks consumed

To accomplish this goal we need another branch of statistics-

Descriptive Statistics helps to answer these questions

Inferential statistics is also a set of methods, but it is used to

What can we infer about a Populations Parameters

Therefore, we can make an estimate, prediction, or decision

Thus, we can apply what we know about a sample to the

Time series data

Describe variables and various types of measurement scales.

A variable is the general characteristic being

Types of Quantitative Variables

Types of Quantitative Variables

The Nominal Data

Qualitative values may be

The Ordinal Scale

Differences between categories are meaningless because the

The Ratio Scale

The Ratio Scale

We can summarize the data in a table that presents the

A relative frequency distribution lists the categories and the

Work Status Code Frequency Percentage Frequency (%)

Bar Charts are often used to display frequencies

Pie Charts show relative frequencies

There are only a few telephone

Alternative, we could use Sturges formula:

Positively Skewed Negatively Skewed

A modal class is the class with

Many statistical techniques

Drawing the histogram

We create an ogive in three steps

First, from the frequency distribution created earlier,

Relative Frequency = # of observations in a class

We create an ogive in three steps

The ogive can be used to

What telephone bill value

Measures of Relative Standing

Measures of Linear Relationship

It is computed by simply adding up all the observations and

Sum of the observations

When referring to the number of observations in a

The arithmetic mean for a population is denoted with Greek

The arithmetic mean for a sample is denoted with an

is seriously affected by extreme values called outliers.

Data: {0, 7, 12, 5, 14, 8, 0, 9, 22} N=9 (odd)

Data: {0, 7, 12, 5, 14, 8, 0, 9, 22, 33} N=10 (even)

Sort them bottom to top, the middle is the

Sample and population modes are computed the same way.

Which observation appears most often?

You will have to use other techniques (i.e. histogram) to

The mean is generally our first selection. However, there are

The mode is seldom the best measure of central location.

One advantage the median holds is that it not as sensitive to