Correlation
Covariance Covariance is a measure of how two variables move together. The sample covariance of X and Y is calculated as follows: $$ \mathrm{S}_{\mathrm{XY}}=\frac{\sum_{\mathrm{i}=1}^{\mathrm{N}}\left(\mathrm{X}_{\mathrm{i}}-\overline{\mathrm{X}}\right)\left(\mathrm{Y}_{\mathrm{i}}-\overline{\mathrm{Y}}\right)}{\mathrm{n}-1} $$ A major drawback of covariance is that it is difficult to interpret since its value…
StickyKurtosis
Kurtosis refers to the measurement of the degree to which a given distribution is more or less ‘peaked’ relative to the normal distribution. The concept of kurtosis is very useful in decision-making. In this regard, we have 3 categories of…
Interpreting Skewness
Skewness refers to the degree of deviation from a symmetrical distribution, such as the normal distribution. A symmetrical distribution has identical shapes on either side of the mean. Distributions that are nonsymmetrical have unequal shapes on either side of the…
Downside Deviation
When trying to estimate downside risk (i.e., returns below the mean), we can use the following measures: Semi-variance: The average squared deviation below the mean. Semi-deviation (also known as semi-standard deviation): The positive square root of semi-variance. Target semi-variance: The…
Calculating and Interpreting Measures of Dispersion
Measures of dispersion are used to describe the variability or spread in a sample or population. They are usually used in conjunction with measures of central tendency, such as the mean and the median. Specifically, measures of dispersion are the…
Quantiles and Related Visualizations
Quantiles Quartiles, quintiles, deciles, and percentiles are values or cut points that partition a finite number of observations into nearly equal-sized subsets. The number of partitions depends on the type of cut point involved.
Alternative Mean Definitions for Different Investment Problems
Suitability of Alternative Mean Definitions for Different Investment Problems $$ \begin{array}{l|l} \textbf { Type of Data } & \textbf { Mean to Use } \\ \hline \text { Single period data } & \text { Arithmetic mean } \\ \hline…
Summarizing Data Using Frequency Distributions
Frequency Distribution A frequency distribution refers to the presentation of statistical data in a tabular format to simplify data analysis. In a frequency distribution, data is subdivided into groups or intervals. The standard procedure for constructing a frequency distribution involves…
Data Types
This reading will teach you the tools and techniques used to organize, visualize, and describe data. In addition, you will learn how to convert data into useful information that analysts can use to make important investment decisions. Data Types Data…
Monetary and Nonmonetary Benefits Affecting the Value and Price of a Forward Contract
The value and price of forward contracts are affected by the benefits and costs of holding its underlying asset. Carrying costs and opportunity costs can affect the value of holding the asset, and it is sometimes beneficial to hold the…
