Business Analytics

Module 4

INTRODUCTION TO STATISTICS
MEASURES OF CENTRAL TENDENCY
⮚ There are three main measures of central tendency. These are as
follows:

1. Arithmetic Mean: The mean of a variable represents its average value.

It can be calculated by using the following formula:

Xi = the ith observation ,

fi = the frequency of an ith observation of the

variable.
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MEASURES OF CENTRAL TENDENCY (Continued)
2. Median:

• Median is known as the ‘positional average’ of a variable.

• If we arrange the observations of a variable in an ascending or
descending order, the value of the observation that lies in the middle of
the series is known as median.
• The value of the median divides the observations of a variable into two
equal halves. Half of the observations are higher than
the median value and the other half are lower than the
median value. 3
MEASURES OF CENTRAL TENDENCY (Continued)

3. Mode:

The mode of a variable is the observation with the highest frequency or

highest concentration of frequencies.

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MEASURES OF CENTRAL TENDENCY Example

The monthly sales figures

(in crores) of an enterprise
for 20 consecutive months
are given in Table:

Source : Wiley Page no: 81

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Calculations of previous example in Excel

Source : Wiley Page no: 82 Source : Wiley Page no: 82

Source : Wiley Page no: 82

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PROBABILITY THEORY

● Probability distribution may be discrete or continuous.

● Probability theory is also used to build intelligent systems. For
example, techniques and approaches such as automatic speech
recognition and computer vision which involve machine perception
and artificial intelligence are based on probabilistic models.

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CORRELATION

● Correlation is a statistical technique to show the association

between a pair of dependent variables.
● Let us try to understand this concept with example considering
correlation between height and weight : People may have different
weights even if their heights are same.

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CORRELATION continued

● The result obtained using correlation is known as correlation

coefficient and is represented by “r”.
● It is also known as Pearson’s correlation coefficient.

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CORRELATION (Continued)

● The range of coefficient lies between –

1.0 to +1.0.
● The closeness of r with +1 or -1 shows
that two variables are closely related.
● If the value of r is close to 0, then it
Source : Wiley Page no: 105
signifies that no relationship exists
between two variables.

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CORRELATION (Continued)
● The correlation coefficient does not work well in case of the curvilinear
relationship in which the relationship between variables cannot be
represented using a straight line on a graph.
● For example, consider two variables, age and healthcare. These
variables are related to each other; however, they do not follow a
straight line.
● It is because older people and kids require
more healthcare as compared to young and
teenagers.
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REGRESSION ANALYSIS

● Regression analysis is usually used to model a relationship

between a response variable (dependent variable) and one or
more predictor (independent) variables.
● Regression analysis helps in identifying which variables have an
impact on a variable of interest.

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REGRESSION ANALYSIS (Continued)

● For example, the impact of demand on supply, impact of money

supply on inflation, etc.
● By performing regression analysis, we can determine the factors
that matter the most, which factors have negligible impact (hence,
can be ignored), and how these factors influence each other.

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REGRESSION ANALYSIS (Continued)

● Dependent variable: Regression analysis is carried out to

understand or predict the dependent variable.
● Independent variables: Regression analysis involves use of
hypothesised factors or the independent variables that have an
impact on the dependent variable.

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BUILD REGRESSION MODEL IN EXCEL

● 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?

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BUILD REGRESSION MODEL IN EXCEL
(Continued)

Sample data

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BUILD REGRESSION MODEL IN EXCEL
(Continued)
1. On the Data tab, in the Analysis group, click Data Analysis.

2. Select Regression and 3. Select X and Y range

click OK.

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BUILD REGRESSION MODEL IN EXCEL
(Continued)
 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.
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Thank You

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