2. Measures of Central Tendencies

When we analyse data, we would wish to have a single or the typical value that represents and summarizes all the data points in a meaningful way. In any data set, there is a tendency of data points to cluster around a central value, and this tendency is called central tendency. It is a statistical tool that defines/describes the entire data set in one single value as well as compares different data sets. The data can further be analysed using measures of dispersion, which gives the “spread” of data values from the mean/average value. One of the measures, namely standard deviation and its relative measure, the coefficient of variation is an important indicator of stability, consistency, uniformity and reliability of data values in a group. Understanding the shape of data is also crucial to data analysis, which can be done through skewness and kurtosis. Skewness measures the asymmetry in data, while kurtosis measures the concentration of data values in the tails. Kurtosis is helpful in finance to understand risks in an investment.