Los 3.a Flashcards
(13 cards)
What is the definition of a trimmed and Winsorized mean?
A trimmed mean excluded the lowest and highest % of observations, whereas a winsorized mean substitutes outliers with the lowest and highest from the accepted list.
What does dispersion mean?
Dispersion is variability around the central tendency. Can be range, Mean Absolute Deviation, Sample Variance, Sample Standard Deviation, etc
What’s the Mean Absolute Deviation? and how to calculate it?
Defintion: Is the average of the absolute values of the deviations of individual observations of from the arithmetic mean
Calculation: ((ob1-mean)+(ob2-mean)…+(obN-mean)/n)
Ob = observation
What is the sample variance? How do you calculate it?
Defintion: Is the average of the absolute values of the deviations of individual observations of the samples sizes
Calculation: ((ob1-mean)^2+(ob2-mean)^2…+(obN-mean)^2/n-1)
What is the standard devition and how do you calculate it?
Standard deviation is a way of calculating variation without it being in squared units of measurements, so you just square root the sample variance to get the standard deviation.
What is relative dispersion?
Defintion: It os hard to compare measures of dispersion between two data sets with different means, so a this is way you can compare two data sets
Calculation: Standard deviation of x / average value of x
To remember the formula for CV, remember that the CV is a measure of variation, so standard deviation goes in the numerator. CV is variation per unit of return.
What is target downside deviation and how do we calculate it?
Defintion: Standard deviation and variance consider all deviations from the average, both positive and negative, when measuring risk. Sometimes, however, only negative deviations (or deviations below a specific target) matter. Target downside deviation (or target semideviation) measures this downside risk. Similar to standard deviation, it calculates deviations, but only includes those that fall below a specified target value.
Calculation: Same as standard deviation but only if the value is minus
What is a positive skew
It has outliers that are greater than the mean, Mode < Median < Mean
What is a negative skew
Negative skew is when there is a number of outliers that are less than the mean
Mode > Median > Mean
What is Kurtosis and what are the different types?
Kurtosis is a measures of the degree that a distribution is more or less peaked compared to a normal distribution
Leptokurtic- more peaked than a normal distribution
Platykurtic - less peaked than an normal distribution
Mesokurtic - if returns are the same kurtosis as a normal distribution
What is covariance and how do you work it out?
It measures how two variable move together, the calculation is (observation of x - mean of x) (observation of y - mean of y) / n-1
How do you workout the correlation coefficient?
It is a standardised measure of the linear relationship between two variables.
calculation: Standard deviation of XY / (Standard Deviation X * Standard Deviation Y)
Meaning that Standardion of XY = Coefficent XY * SD X * SD Y
What is spurious correlation
This is correlation that is the result of chance or result of both variables being associated with a third variable.
