Introductory Session -4

CP Garg, IIM Rohtak

 Measures of Variation
Variation

Range Quartile Variance Standard Coefficient of

Deviation Variation

◼ Measures of variation
give information on the
spread or variability or
dispersion of the data
values.

Same center,
different variation
 Measures of Variation:
The Range
▪ Simplest measure of variation
▪ Difference between the largest and the smallest values:

Range = Xlargest – Xsmallest

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 14 - 1 = 13
 Measures of Variation:
Why The Range Can Be Misleading

▪ Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5

▪ Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5

Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120

Range = 120 - 1 = 119

 Quartile Measures
• Quartiles split the ranked data into 4 segments with an
equal number of values per segment

25% 25% 25% 25%

Q1 Q2 Q3
◼ The first quartile, Q1, is the value for which 25% of the observations are smaller
and 75% are larger
◼ Q2 is the same as the median (50% of the observations are smaller and 50% are
larger)
◼ Only 25% of the observations are greater than the third quartile
 Quartile Measures:
Locating Quartiles
Find a quartile by determining the value in the appropriate position in the ranked data,
where

First quartile position: Q1 = (n+1)/4 ranked value

Second quartile position: Q2 = (n+1)/2 ranked value

Third quartile position: Q3 = 3(n+1)/4 ranked value

where n is the number of observed values

 Quartile Measures:
Calculation Rules
• When calculating the ranked position use the
following rules
– If the result is a whole number then it is the ranked
position to use

– If the result is a fractional half (e.g. 2.5, 7.5, 8.5, etc.)

then average the two corresponding data values.

– If the result is not a whole number or a fractional half

then round the result to the nearest integer to find
the ranked position.
 Quartile Measures:
Locating Quartiles
Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5

Q1 and Q3 are measures of non-central location

Q2 = median, is a measure of central tendency
 Quartile Measures
Calculating The Quartiles: Example
Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22
(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data,
so Q1 = (12+13)/2 = 12.5

Q2 is in the (9+1)/2 = 5th position of the ranked data,

so Q2 = median = 16

Q3 is in the 3(9+1)/4 = 7.5 position of the ranked data,

so Q3 = (18+21)/2 = 19.5

Q1 and Q3 are measures of non-central location

Q2 = median, is a measure of central tendency
 Quartile Measures:
The Interquartile Range (IQR)

• The IQR is Q3 – Q1 and measures the spread in the middle 50% of

the data

• The IQR is also called the midspread because it covers the middle
50% of the data

• The IQR is a measure of variability that is not influenced by

outliers or extreme values
 Calculating The Interquartile
Range
Example:
Median X
X Q1 Q3
(Q2) maximum
minimum
25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27
What is the IQR for this dataset:
2, 4, 6, 8, 10, 12, 14, 16, 18?
 Measures of Variation:
The Variance
• Average (approximately) of squared deviations of values from
the mean

– Sample variance: n

 (X − X)
i
2

S = 2 i=1
n -1
Where X= arithmetic mean
n = sample size
Xi = ith value of the variable X
 Measures of Variation:
The Standard Deviation
• Most commonly used measure of variation
• Shows variation about the mean
• Is the square root of the variance
• Has the same units as the original data

n
– Sample standard deviation:  (X − X) i
2

S= i=1
n -1
 Measures of Variation:
The Standard Deviation
Steps for Computing Standard Deviation

1. Compute the difference between each value and the

mean.
2. Square each difference.
3. Add the squared differences.
4. Divide this total by n-1 to get the sample variance.
5. Take the square root of the sample variance to get
the sample standard deviation.
 Measures of Variation:
Sample Standard Deviation:
Calculation Example
Sample
Data (Xi) : 10 12 14 15 17 18 18 24

n=8 Mean = X = 16
 (10 − X) 2 + (12 − X) 2 + (14 − X) 2 +  + (24 − X) 2
S=
n −1

(10 − 16) 2 + (12 − 16) 2 + (14 − 16) 2 +  + (24 − 16) 2

=
8 −1

130
= = 4.3095
7
 Measures of Variation:
Comparing Standard Deviations
Data A
Mean = 15.5

11 12 13 14 15 16 17 18 19 20 21
S = 3.338

Data B Mean = 15.5

S = 0.926
11 12 13 14 15 16 17 18 19 20 21

Data C Mean = 15.5

S = 4.570
11 12 13 14 15 16 17 18 19 20 21
 Measures of Variation:
Comparing Standard Deviations

Smaller standard deviation

Larger standard deviation

 Standard Deviation for
Grouped Data-Example
Frequency Distribution of Return on
Investment of Mutual Funds
Return on Number of
Investment Mutual Funds
5-10 10
10-15 12
15-20 16
20-25 14
25-30 8
Total 60
Solution for the Example
 Solution for the Example

From the spreadsheet of Microsoft Excel in the previous

slide, it is easy to see

Mean = X =  fX=1 = 1040/60=17.333(cell F10),

n

 f(X=− X)2
2448.33
Standard Deviation = S = 59
= 6.44
n −1
(Cell H12)
 Measures of Variation:
Summary Characteristics
▪ The more the data are spread out, the greater the range,
variance, and standard deviation.

▪ The more the data are concentrated, the smaller the range,
variance, and standard deviation.

▪ If the values are all the same (no variation), all these
measures will be zero.

▪ None of these measures are ever negative.

What is the standard deviation among IIMs Placement Package

IIM Campus Specialization Company Placed In Role Package (LPA) Location

IIM Ahmedabad Finance Goldman Sachs Investment Analyst 35 Mumbai

IIM Bangalore Operations Amazon Ops Manager 28 Bengaluru

IIM Calcutta Operations Amazon Ops Manager 27 Hyderabad

IIM Lucknow HR Aditya Birla Group HR Business Partner 22 Mumbai

IIM Kozhikode Analytics Deloitte Business Analyst 20 Gurugram

IIM Indore Finance JP Morgan Finance Associate 30 Bengaluru

IIM Udaipur General Mgmt Tata Administrative Services Management Trainee 26 PAN India

IIM Shillong Marketing ITC Ltd Area Sales Manager 24 Chennai

IIM Rohtak Strategy Accenture Strategy Consultant 25 Delhi NCR

IIM Trichy Finance KPMG Risk Analyst 21 Mumbai

 Measures of Variation:
The Coefficient of Variation
• Measures relative variation
• Always in percentage (%)
• Shows variation relative to mean
• Can be used to compare the variability of two or more sets
of data measured in different units

 S 
CV =   100%

X 
 Measures of Variation:
Comparing Coefficients of Variation
• Stock A:
– Average price last year = $50
– Standard deviation = $5
 S  $5
CVA =   100% =
 100% = 10%
X  $50 Both stocks
have the same
• Stock B: standard
deviation, but
– Average price last year = $100 stock B is less
– Standard deviation = $5 variable
 S  $5 relative to its
CVB =   100% =
 100% = 5% price
X  $100
 Shape of a Distribution
• Describes how data are distributed
• Measures of shape
– Symmetric or skewed

Left-Skewed(Negative)) Symmetric Right-Skewed (Positive)

Mean < Median Mean = Median Median < Mean

General Descriptive Stats Using
Microsoft Excel
1. Select Tools.
2. Select Data Analysis.
3. Select Descriptive Statistics and
click OK.
 General Descriptive Stats Using
Microsoft Excel

4. Enter the cell range.

5. Check the Summary
Statistics box.
6. Click OK
 Excel output
Microsoft Excel
descriptive statistics output,
using the house price data:

House Prices:

$2,000,000
500,000
300,000
100,000
100,000