Reading 8: Statistical Concepts & Market Returns Flashcards
LOS 8.A-
a.) Distinguish between descriptive statistics & inferential statistics
There are 2 different types of statistics:
Differential Statistics- statistics that refers to population statistics which gives important details about the population to interpret data sets. (parameters)
Inferential Statistics- inferential statistics uses measurements from a sample to draw estimates for the population via extrapolation.
LOS 8.A-
b.) distinguish between a population & a sample
Population- the whole population is being evaluated
Sample- the sample is selected w/o bias for representation of the population.
LOS 8.A-
c.) among the types of measurement scales
Nominal- (1- boy 2-girl) basic values but no definition for the values
Ordinal- order and definition to the values. (5=high pain, 4= pain, 3= average, 2= normal, 1= below pain)
Interval- like salaries that is based on an interval but it has no set zero.
Scalar- has an absolute zero; also has infinite values in between data points.
LOS 8.B-
Define a parameter, a sample statistic, & a frequency distribution.
Parameter- a parameter is based on the population
Sample Statistic- based on a sample like ‘sample mean’
Frequency Distribution- a tabular distribution that gives absolute frequencies, relative frequencies, etc.
LOS 8.C-
Calculate & interpret relative frequencies and cumulative relative frequencies, given a frequency distributions.
relative frequency- its a percentage of ‘wanted values’/ ‘total value’
cumulative relative frequency- its a percentage of ‘wanted values’/ ‘total values’ sum of all values below as well.
LOS 8.D-
Describe the properties of a data set presented as a histogram or a frequency polygon.
Histogram- it is the sum of all the absolute frequencies.
Frequency Polygon- a.) take the average between both ends of the class interval
b.) then take the absolute frequency as the value for the y-axis.
LOS 8.E-
a.) Calculate and interpret measures of central tendency
What are the measures of central tendency?
- population mean
- sample mean
- arithmetic mean (Sum of mean derivatives (SUM(x- x bar =0))
LOS 8.E-
b.) how to calculate weighted average mean
WEIGHTED AVERAGE MEAN= Sum of ALL (WiXi)
LOS 8.E-
c.) calculate Geometric Mean
G mean = (x1 * x2 * x3* x4…….) (1/n)
n= the number of items in the list x= the number itself
Used for forecasting the rate of return in the future for the FUTURE vs. arithmetic mean which is for current year
LOS 8.E-
d.) calculate the Harmonic mean
Harmonic mean = N/ (SUM OF 1/Xi)
LOS 8.F-
Calculate and interpret quartiles, quintiles, deciles, and percentiles.
1.) To find quantiles, you will need to calculate:
Ly= (n+1)(y/100)
n= total numbers
y= the percentile
2.) Then count towards that number to see where that range will begin for the quantile.
LOS 8.G-
a.) Calculate and interpret a range & a mean absolute deviation
Range- a measure of variability; gives understanding of distance
Mean Absolute Deviation-
MAD = SUM [(x- x bar)] / n
LOS 8.G-
b. & c.) Calculate and interpret a variance & SD of a population/SAMPLE
VARIANCE OF POPULATION
S^2= [(X-U)^2/N]
SD OF POPULATION
S^2= [(X-U)^2/(N-1)]
SD= SQUARE ROOT OF S^2
LOS 8.H- Calculate and interpret the coefficient of variation and the Sharpe Ratio.
CV= Standard Deviation/ Mean
*** measures the relative distance BETWEEN STATISTIC AND the mean
Sharpe Ratio- the rate of return after risk free rate is taken out
SR= (IR- RFR)/(SD)
** Excess Return per unit of Risk **
LOS 8.K: Describe the relative locations of the mean, median, and mode for a unimodal, non-symmetrical distribution for skewness
Positive Skew- (mode < median < mean)
Negative Skew- (mode> median> mean)
