Business Statistics
Measures of Variability
By: Meily Juliani, SE., MM.
LEARNING OBJECTIVES
1. Able to describe various measures of variability of
ungrouped data
2. Apply various measures of variability—including the
range, interquartile range, mean absolute deviation,
variance, standard deviation, z scores, and coefficient
of variation—to a set of ungrouped data
DEFINITION
Measures of central tendency yield information about the
center or middle part of a data set. However, business
researchers can use another group of analytic tools,
measures of variability to describe the spread or the
dispersion of a set of data.
MEASURES OF VARIABILITY
Ungrouped
Data
Interquartile Mean Standard Coefficient of
Range Variance Z scores
Range Absolute Deviation Deviation Variation (CV)
RANGE
The range is the difference between the largest value of
a data set and the smallest value of a set.
• Advantage- easy to compute
• Disadvantage- affected by extreme values
Range = Highest - Lowest
EXAMPLE
A large bakery regularly orders cartons of Maine
blueberries. The average weight of the cartons is
supposed to be 22 ounces. Random samples of cartons
from two suppliers were weighed. The weights in ounces
of the cartons were
Supplier I: 17 22 22 22 27
Supplier II: 17 19 20 27 28
Compute the range of carton weights from each supplier.
Range = Largest value - Smallest value
Supplier I range = 27 - 17 = 10 ounces
Supplier II range= 28 - 17 = 11 ounces
INTERQUARTILE RANGE
The interquartile range is the range of values between
the first and third quartile.
• The interquartile range is especially useful in situations
where data users are more interested in values toward
the middle and less interested in extremes. For
example, in describing a real estate housing market,
Realtors might use the interquartile range as a measure
of housing prices when describing the middle half of the
market for buyers who are interested in houses in the
midrange Interquartile Range = Q₃-
Q₁
EXAMPLE
The following data indicate the top 15 trading partners of the United
States in exports in a recent year according to the U.S. Census Bureau.
What is the interquartile range for these data?
The process begins by computing the first and third quartiles as
follows.
Solving for Q₁ = P₂₅ when N = 15:
i = (15) = 3.75
Because i is not a whole number, P₂₅ is found as the fourth term from
the bottom.
Q₁ = P₂₅ = 23.0
Solving for Q₃ = P75;
i = (15) = 3.75
Because i is not a whole number, P₇₅ is found as the 12th term from
the bottom
Q₃ = P75 = 58.1
The interquartile range is:
Q₃ - Q₁ = 58.1 - 23.0 = 35.1 ($ billions)
MEAN ABSOLUTE DEVIATION
The mean absolute deviation (MAD) is the average of the absolute values of
the deviations around the mean for a set of numbers.
MAD =
Where
MAD = Mean Absolute Deviation
∑ = Total (Read = Sigma)
X = Data
|
µ = Mean ()
| = Absolute
EXAMPLE
Suppose a small company started a production line to build
computers. During the first five weeks of production, the output is 5,
|x - µ|
9, 16, 17, and 18 computers, respectively. Compute a mean absolute
deviation. x x-µ
5 -8 +8
9 -4 +4
16 +3 +3
17 +4 +4
18 +5 +5
∑x=65 ∑(x-µ)=0 ∑|x - µ|= 24
µ= =
MAD = = =4.8
VARIANCE
The variance is the average of the squared deviations about the
arithmetic mean for a set of numbers. The population variance is
denoted by σ².
σ²=
Where
σ² = Population Variance
X = Data
µ = Mean ()
N = Total Data
STANDARD DEVIATION
The standard deviation is the square root of the variance.
The population standard deviation is denoted by σ.
σ=
σ=
EXAMPLE (CONT)
x x-µ (x - µ)² Z-score
5 -8 64 (5-13)/5.1 = -1.56
9 -4 16
16 +3 9
17 +4 16
18 +5 25 (18-13)/5.1 = 0.98
∑x=65 ∑(x-µ)=0 ∑(x-µ)²=130
µ = 13; Variance= σ²=
Standard Deviation= σ=
Z SCORES
A z score represents the number of standard deviations a value (x) is above or
below the mean of a set of numbers when the data are normally distributed.
Use to find “OUTLIER” => pencilan
Using z scores allows translation of a value’s raw distance from the mean into units
of standard deviations.
Z=
Where
Z = Z scores
x = Data
µ = Mean
σ = Standard Deviation
Z SCORES
Because a z score is the number of standard deviations an
individual data value is from the mean, the empirical rule can
be restated in terms of z scores.
Between z = -1.00 and z = +1.00 are approximately 68% of the
values.
Between z = -2.00 and z = +2.00 are approximately 95% of the
values.
Between z = -3.00 and z = +3.00 are approximately
99.7% of the values.
The larger the absolute value of the Z-score, the farther the
data value is from the mean.
Z = 3.14 =outlier,
z= -3.01 = outlier
EXAMPLE
Suppose the mean math SAT score is 490, with a
standard deviation of 100.
Compute the Z-score for a test score of 620.
Z= = = = 1.3
A score of 620 is 1.3 standard deviations above the mean
and would not be considered an outlier.
COEFFICIENT OF VARIATION
• The coefficient of variation is a statistic that is the ratio
of the standard deviation to the mean expressed in
percentage and is denoted CV.
• The coefficient of variation can be useful in comparing
standard deviations that have been computed from data
with different means.
CV =
EXAMPLE
Suppose five weeks of average prices for stock A are 57, 68,
64, 71, and 62. And the average prices for a second stock, B,
over these same five weeks are 12, 17, 8, 15, and 13.
Compute the coefficient of variation of both stock A and B.
SOLUTION
To compute a coefficient of variation for these prices, first
determine the mean and standard deviation: µ= 64.40 and
σ= 4.84. The coefficient of variation stock A is :
CVA = =
The standard deviation is 7.5% of the mean.
EXAMPLE (CONT.)
The mean for stock B is µ=13.00 with a standard
deviation of σ= 3.03. The coefficient of variation can be
computed for stock B as:
CVB = =
The standard deviation for stock B is 23.3% of the mean.
ANALYSIS OF THE EXAMPLE
• With the standard deviation as the measure of risk, stock A is
more risky over this period of time because it has a larger
standard deviation.
• However, the average price of stock A is almost five times as
much as that of stock B. Relative to the amount invested in
stock A, the standard deviation of $4.84 may not represent as
much risk as the standard deviation of $3.03 for stock B, which
has an average price of only $13.00.
• The coefficient of variation reveals the risk of a stock in terms
of the size of standard deviation relative to the size of the mean
(in percentage). Stock B has a coefficient of variation that is
nearly three times as much as the coefficient of variation for
stock A. Using coefficient of variation as a measure of risk
indicates that stock B is riskier.
THANKYOU FOR YOUR ATTENTION!!
