Measures

Measures of
of Variability
Variability
• Measures of variability describe the spread or
the dispersion of a set of data.
• Common Measures of Variability
– Range
– Interquartile Range
– Mean Absolute Deviation
– Variance
– Standard Deviation
– Z scores
– Coefficient of Variation
 Variability
No Variability in Cash Flow Mean
Mean

Variability in Cash Flow Mean

Mean
 Variability

Variability

No Variability
 Range
• The difference between the largest and
the smallest values in a set of data
• Simple to compute 35 41 44 45

• Ignores all data points 37 41 44 46

except the
37 43 44 46
two extremes
• Example: 39 43 44 46

Range 40 43 44= 46
Largest - Smallest =
48 - 35 = 13 40 43 45 48
 Interquartile Range

• Range of values between the first and third

quartiles
• Range of the “middle half”
• Less influenced by extremes

Interquartile Range  Q3 Q1

 Deviation from the Mean
• Data set: 5, 9, 16, 17, 18
• Mean:

 X

65
 13
N 5

• Deviations from the mean: -8, -4, 3, 4, 5+5

+3 +4
-8 -4
0 5 10 15 20


 Mean Absolute Deviation
• Average of the absolute deviations from
the mean

X X  X    X
M . A. D. 
5 -8 +8 N
9 -4 +4 24
16 +3 +3 
17 +4 +4
5
18 +5 +5  4. 8
0 24
 Population Variance
• Average of the squared deviations from
the arithmetic mean
X    X 
X   X  
2
2


2
5 -8 64 
9 -4 16 N
16 +3 9 130

17 +4 16 5
18 +5 25  26.0
0 130
 Population Standard Deviation
• Square root of the
variance
  X  
2

X    X  
2
X 
2

N
5 -8 64 130
9 -4 16 
5
16 +3 9
 26.0
17 +4 16
18 +5 25

2
 
0 130
 26.0
 51
. Slide 3-9
 Empirical Rule
• Data are normally distributed (or
approximately normal)

Distance from Percentage of Values

the Mean Falling Within Distance

  1 68
  2 95
  3 99.7
 Sample Variance
• Average of the squared deviations from the
arithmetic mean

X X  X XX  X  X 
2
2

2
2,398 625 390,625 S 
n 1
1,844 71 5,041
1,539 -234 54,756 663,866

1,311 -462 213,444 3
7,092 0 663,866  221,288.67
 Sample Standard
Standard Deviation
Deviation
• Square root of the
 X  X 
2

sample variance S
2

X X  X XX
2
n 1
663,866
2,398 625 390,625 
1,844 71 5,041 3
1,539 -234 54,756  221,288.67
1,311 -462 213,444 2
7,092 0 663,866 S S
 221,288.67
 470.41
 Coefficient
Coefficient of
of Variation
Variation
• Ratio of the standard deviation to the
mean, expressed as a percentage
• Measurement of relative dispersion


C .V .   100 

 Coefficient
Coefficient of
of Variation
Variation
1  29 2  84
 1
 4.6  2
 10
 
. .    100
CV 1
1
CV
. .2
2
 100
1 2

4.6 10
  100   100
29 84
 1586
.  1190
.
 Measures of Shape
• Skewness
– Absence of symmetry
– Extreme values in one side of a
distribution
• Kurtosis
– Peakedness of a distribution
• Box and Whisker Plots
– Graphic display of a distribution
– Reveals skewness
 Skewness

Negatively Symmetric Positively

Skewed (Not Skewed) Skewed
 Skewness

Mean Mode Mean Mean

Mode
Median
Median Mode Median

Negatively Symmetric Positively

Skewed (Not Skewed) Skewed
 Coefficient of Skewness
• Summary measure for skewness

3   M d 
S 

• If S < 0, the distribution is negatively skewed
(skewed to the left).
• If S = 0, the distribution is symmetric (not
skewed).
• If S > 0, the distribution is positively skewed
(skewed to the right).
 Coefficient of Skewness

  23
1
 2
 26  3
 29

M  26
d1 M d2  26 Md3  26
  12.3
1  2
 12.3  3
 12.3

3   M  d1 
3 2  M d2  
3 3  M 
d3
S  S S
1
 
1
1
2
 2
3
 3

3 23  26 3 26  26 3 29  26

  
12.3 12.3 12.3
 0.73 0  0.73
 Kurtosis
• Peakedness of a distribution
– Leptokurtic: high and thin
– Mesokurtic: normal in shape
– Platykurtic: flat and spread out

Leptokurtic

Mesokurtic
Platykurtic
 Box and Whisker Plot

• Five specific values are used:

– Median, Q2
– First quartile, Q1
– Third quartile, Q3
– Minimum value in the data set
– Maximum value in the data set
Box and Whisker Plot, continued
• Inner Fences
– IQR = Q3 - Q1
– Lower inner fence = Q1 - 1.5 IQR
– Upper inner fence = Q3 + 1.5 IQR

• Outer Fences
– Lower outer fence = Q1 - 3.0 IQR
– Upper outer fence = Q3 + 3.0 IQR
 Box and Whisker Plot

Minimum Q1 Q2 Q3 Maximum
Skewness:
Skewness: Box
Box and
and Whisker
Whisker Plots,
Plots,
and Coefficient of Skewness
S<0 S=0 S>0

Negatively Symmetric Positively

Skewed (Not Skewed) Skewed