7/6/2016

Statistics:Dispersion

QuickMBA/Statistics/Dispersion

Dispersion
Withoutknowingsomethingabouthowdataisdispersed,measuresofcentral
tendencymaybemisleading.Forexample,aresidentialstreetwith20homesonit
havingameanvalueof$200,000withlittlevariationfromthemeanwouldbevery
differentfromastreetwiththesamemeanhomevaluebutwith3homeshavinga
valueof$1millionandtheother17clusteredaround$60,000.Measuresof
dispersionprovideamorecompletepicture.Dispersionmeasuresincludethe
range,averagedeviation,variance,andstandarddeviation.
Range
Thesimplestmeasureofdispersionistherange.Therangeiscalculatedbysimply
takingthedifferencebetweenthemaximumandminimumvaluesinthedataset.
However,therangeonlyprovidesinformationaboutthemaximumandminimum
valuesanddoesnotsayanythingaboutthevaluesinbetween.
AverageDeviation
Anothermethodistocalculatetheaveragedifferencebetweeneachdatapointand
themeanvalue,anddividebythenumberofpointstocalcuatetheaverage
deviation(meandeviation).However,performingthiscalcuationwillresultinan
averagedeviationofzerosincethevaluesabovethemeanwillcancelthevalues
belowthemean.Ifthismethodisused,theabsolutevalueofthedifferenceistaken
sothatonlypositivevaluesareobtained,andtheresultsometimesiscalledthe
meanabsolutedeviation.Theaveragedeviationisnotverydifficulttocalculate,and
itisintuitivelyappealing.However,themathematicsareverycomplexwhenusingit
insubsequentstatisticalanalysis.Becauseofthiscomplexity,theaveragedeviation
isnotaverycommonlyusedmeasureofdispersion.
VarianceandStandardDeviation
Abetterwaytomeasuredispersionistosquarethedifferencesbeforeaveraging
them.Thismeasureofdispersionisknownasthevariance,andthesquarerootof
thevarianceisknownasthestandarddeviation.Thestandarddeviationand
variancearewidelyusedmeasuresofdispersion.
QuickMBA/Statistics/Dispersion
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