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J10 - Discretionary Investment Management > 12. Understanding Investment Data > Flashcards

12. Understanding Investment Data Flashcards

1
Q

A. Statistics (page 2)

A

Statistics refers to two things:

  • data
  • collection and analysis of data
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2
Q

A1. What are statistics used for? (page 2)

A

Used to analyse data, including investment returns, prices and earnings growth.

Two important concepts to bear in mind:

  1. Descriptive statistics is the study of how data can be effectively summarised to provide information on a larger group
  2. Statistical reference refers to making estimates or judgements about a larger group
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3
Q

A2. Populations and samples (page 2)

A

POPULATION
- is all members of a specified group

SAMPLE
- a subset of the population that provides information on the population

PARAMETER

  • used to describe a characteristic of a population
  • population parameters are unknown values

STATISTIC

  • used to describe a sample
  • in some cases a sample statistic is computed to estimate a parameter of a population
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4
Q

B. Distributions (page 2)

A

Distributions are used to summarise data so that it can be more readily analysed.

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5
Q

B1. Frequency distributions (pages 2 & 3)

A

FREQUENCY DISTRIBUTION

  • is the grouping of data into a number of non-overlapping classes or intervals
  • this is so that the number of observations in each interval can be counted and the data analysed

ABSOLUTE FREQUENCY
- the number of observations in each interval

RELATIVE FREQUENCY

  • percentage of the total observations falling into the interval
  • absolute frequency divided by the total number of observations

CUMULATIVE RELATIVE FREQUENCY (for an interval)
- is the sum of the relative frequencies for the lowest interval, up to and including the interval

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6
Q

B1A. Histograms (page 4)

A

HISTOGRAM

  • a bar chart
  • showing the absolute frequency on the vertical axis
  • showing the intervals on the horizontal axis
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7
Q

B1B. Frequency polygons (pages 4 & 5)

A

FREQUENCY POLYGONS

  • is a trend line
  • showing the absolute frequency on the vertical axis
  • showing the interval midpoints on the horizontal axis
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8
Q

C. Measures of central tendency (page 5)

C1. Mean (page 5)

C1A. Arithmetic mean (pages 5 & 6)

A

xxx

xxx

xxx

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9
Q

C1B. Geometric mean (pages 6 & 7)

A

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10
Q

C1C. Moving average (pages 7 & 8)

A

xxx

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11
Q

C2. Median (page 8)

A

The MEDIAN Is the value of the middle item.

  • put them all in ascending order and find the middle
  • the middle may be between two numbers, so a .5 of a number
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12
Q

C3. Mode (pages 8 & 9)

A

The MODE is the most frequently occurring observation

  • group the numbers (so all 2s together, all 3s together etc)
  • The Mode is the number that appears the most
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13
Q

D. Measures of dispersion (page 9)

D1. Range (page 9)

A

MEASURES OF DISPERSION measure the variability of the data.
- they indicate whether the mean is a reliable average

RANGE is simply the difference between the highest and the lowest value.

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14
Q

D2. Mean absolute deviation (page 9)

A

xxx

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15
Q

D3. Variance and standard deviation (pages 9, 10, 11 & 12)

A

xxx

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16
Q

D4. Common distributions (page 12)

A

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17
Q

D4A. Discrete and continuous variables (page 12)

A

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18
Q

D4B. Normal distribution (pages 12, 13 & 14)

A
  • Commonly used for asset returns

CHARACTERISTICS OF A NORMAL DISTRIBUTION

  • mean and median are equal
  • mean and variance completely describe the distribution
  • 68.3% of observations lie between +/- 1 Standard Deviation
  • 95.5% of observations lie between +/- 2 Standard Deviations
  • 99.75% of observations lie between +/- 3 Standard Deviations

RETURN (SAY 6%) + OR - THE STANDARD DEVIATION (SAY 1.7%). 68.3% probability that the return will lie between 4.3% and 7.7% (6% +/- 4.3%)

19
Q

E. Sampling (page 14)

A

There are various ways of selecting a sample from a population.

20
Q

E1. Methods of sampling (page 14)

A

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21
Q

E2. Sampling bias (page 15)

A

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22
Q

F. Correlation (page 15)

A

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23
Q

F1. Calculating correlation (pages 15, 16 & 17)

A

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24
Q

F2. Interpreting correlation (page 17)

A

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25
Q

G. Linear regression (page 18)

A

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26
Q

G1. Regression equation (page 18)

A

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27
Q

Chapter 12 Key Points (page 21)

A

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J10 - Discretionary Investment Management (15 decks)

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