Chapter 12 - Understanding Investment Data Flashcards
Population
Is all members of a specified group
Sample
Subset of the population that provides information on the population
Frequency distribution
Grouping of data into a number of non-overlapping classes or intervals.
Histogram
Bar chart showing the absolute frequency on the vertical axis and intervals on the horizontal axis.
Arithmetic mean
Simple average.
Add all figures up and divide it by the number of periods
Geometric mean
Accurate average of historic values
Median
Value of the middle item of a number of readings.
Range
Range between the highest and lowest value
Variance
Calculated using the squares of the deviations from the mean.
Standard Deviation
Commonly used method for measuring risk is standard deviation.
Discrete distribution
Random variable can take on a countable number of possible outcomes.
Continuous distribution
Unable to count the outcomes, rates of return.
1 Standard Deviation
68.3% (mean + 1 standard deviation)
ABC Company LTD
Expected Return - 7%
2 Standard Deviation
95.5% (mean + 2 standard deviations)
3 Standard Deviation
99.75% (mean + 3 standard deviations)
Data-mining bias
This is when forecasting models are derived from searching through historic data for patterns or trading rules.
Selection bias
This occurs when certain data is excluded from the analysis, possibly because the data was not available
Look-ahead bias
When a test uses information that was not available at the test date
Survivorship bias
This type of selection bias occurs when companies that have gone bankrupt or funds or portfolio that have been liquidated
