Measures of Dispersion: Chapter S4

Chapter S4
Measures of dispersion
 Learning Objectives
• Calculate common measures of dispersion from grouped
and ungrouped data (including the range, interquartile
range, mean deviation, and standard deviation)
• Calculate and interpret the coefficient of variation
© 2002 McGraw-Hill Australia, PPTs t/a Introductory

Mathematics & Statistics for Business 4e by John S. Croucher 1
Slide 1
The range
 Simply the difference between the largest and
smallest values in a set of data
 Useful for: daily temperature fluctuations or share
price movement
 Is considered primitive as it considers only the
extreme values which may not be useful indicators of
the bulk of the population.
 The formula is:
Range = largest observation - smallest observation

Slide 2
Interquartile range
 Measures the range of the middle 50% of the values
only
 Is defined as the difference between the upper and
lower quartiles
Interquartile range = upper quartile - lower quartile

= Q3 - Q1

Slide 3
The mean deviation
 Measures the ‘average’ distance of each observation
away from the mean of the data
 Gives an equal weight to each observation
 Generally more sensitive than the range or

interquartile range, since a change in any value will
affect it

Slide 4
Actual and absolute deviations from
mean
A set of x values has a mean of x
 The residual of a particular x-value is:
Residual or deviation = x - x
 The absolute deviation is:
x-x
Slide 5
Mean deviation
 The mean of the absolute deviations
 xx
Mean deviation 
n

Slide 6
To calculate mean deviation
1. Calculate mean of data Find x
2. Subtract mean from each For each x, find

observation xx
Record the differences
3. Record absolute value of Find
each residual xx
for each x
4. Calculate the mean of  xx
Mean deviation 
the absolute values n
Add up absolute values
and divide by n

Slide 7
The standard deviation
 Measures the variation of observations from
the mean
 The most common measure of dispersion
 Takes into account every observation
 Measures the ‘average deviation’ of
observations from mean
 Works with squares of residuals not absolute
values—easier to use in further calculations

Slide 8
Standard deviation of a population
δ
 Every observation in the population is
used.
 x  x
2
Standard deviation  δ 
n
 The square of the population standard
deviation is called the variance.
Variance  δ 2

Slide 9
Standard deviation of a sample
s
 In practice, most populations are very
large and it is more common to
calculate the sample standard deviation.
 x  x 
2
Sample standard deviation  s 

n 1
 Where: (n-1) is the number of observations in the sample

Slide 10
To calculate standard deviation
1. Calculate the mean
x
2. Calculate the residual for each x xx
3. Square the residuals ( x  x )2
4. Calculate the sum of the squares


 xx 2
5. Divide the sum in Step 4 by (n-1) 
 xx 2
n 1
6. Take the square root of quantity
in Step 5

 xx 2
n 1

Slide 11
Standard deviations for frequency
distributions
 If data is in a frequency distribution
No. Units Frequency
n f
1 85
2 192
3 123
Total 400
Total
 Calculate standard deviation using:

s

 x  x 
2
  1
Slide 12
Coefficient of variation
 Is a measure of relative variability used

to:
– measure changes that have occurred in a
population over time
– compare variability of two populations that are
expressed in different units of measurement
– expressed as a percentage rather than in terms of
the units of the particular data

Slide 13
Formula for coefficient of variation
 Denoted by V
s
V  100 %
x
where x = the mean of the sample

s = the standard deviation of the sample

Slide 14
Summary
 Measures of central tendency
– no ideal measure of dispersion exists
– standard deviation is the most important measure
of central tendency
• it is the most frequently used
• the value is affected by the value of every observation in
the data
• extreme values in the population may distort the data

Slide 15

Measures of Dispersion: Chapter S4

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Chapter S4

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

Interquartile range = upper quartile - lower quartile

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

 Gives an equal weight to each observation

 Generally more sensitive than the range or

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

 The mean of the absolute deviations

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

2. Subtract mean from each For each x, find

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

Sample standard deviation  s 

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

3. Square the residuals ( x  x )2

4. Calculate the sum of the squares

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

 Calculate standard deviation using:

 Is a measure of relative variability used

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

where x = the mean of the sample

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

© 2002 McGraw-Hill Australia, PPTs t/a Introductory

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