CHAPTER 4.

MEASURES OF CENTERAL
TENDENCY
• Limitations on our ability to understand complex dataset
lead us to summarize them with few numbers. We use
over-simplified representations because our minds can
not cope with data in its full diversity.
• A measure of Central tendency is a typical value around
which other figures congregate. It is a figure that
represents the data under study
Objectives
• Brief description: An average gives us simple and brief
description of the main features of the data under study.
• To facilitate comparisons between data.
• To make further statistical analysis (base for other
statistical analysis): other statistical devices such as
mean deviation, co-ef fic ient of variation, co-relation, etc
are defined/calculated based on the averages.
Requisites of a Good Measure of Central Tendency:

 It should be rigidly defined.

 It should be based upon all values of given data.

 It should not be affected by extreme values (outliers).

 It should be used for further statistical analysis.

 It should be as little as affected by fluctuations of

sampling.
(It should have sampling stability)
 It should be simple to understand & easy to calculate.
Types of Measures of Central Tendency
 Arithmetic Mean

Arithmetic mean is the sum of all data divided by the

number of data points.
Arithmetic mean for raw data
Let x 1 , x 2 , x 3 ,  , x n be the set of items. The arithmetic mean is given by :
n

x i

x  i 1

n
Example :

A sample of five executives received the following

bonuses
last year ($000): 14.0, 15.0, 17.0, 16.0, 15.0
Determine the average bonus given last year.
Ans: $15400
Arithmetic mean for ungrouped frequency distribution

Class x1 x2 …….. xk
Frequenc f1 f2 ……. fk
y
k

x i
fi
x  i 1
k
;

f
i 1
i

th
where x i
is i individual item, and
th
f i is frequency of the i class
Example: Given below are marks obtained by 20 students in Basic
Statistics out of 25.
21, 23, 19, 17, 12, 15, 15, 17, 17, 19, 23, 23, 21, 23, 25, 25, 21, 19, 19,
19.
Summarize the raw data using ungrouped frequency distribution
form and find the mean mark of students. Ans: 19.65
Mark Frequency
12 1
15 2
17 3
19 5
21 3
23 4
25 2
Arithmetic mean for grouped frequency distribution

Class x1 x2 …….. xk
Frequenc f1 f2 ……. fk
y

x i
fi
x  i 1
k
;

f
i 1
i

th
where x i is class mark/mid - point of i class, and
th
f i is frequency of the i class interval
 Example: The following table gives the frequency distribution of
the number of orders received each day during the past 50 days
at the of fice of a mail-order company. Calculate the mean. Ans
: 16.64
Number of orders Frequency
10-12 4
13-15 12
16-18 20
19-21 14
 Special properties of Arithmetic mean

*The sum of the deviations of a set of items from their

mean is always zero.
*The sum of the squared deviations of a set of items
from their mean is the minimum.
- If x1 is the meann of
1
items
If x is the meannof items
2 2

.
.
If x is the meann of
k
items
n

Then the mean of all the items in all groups often called
the combined mean is given by:
 k

x n i i

x combined  i 1
k

n
i 1
i

Example : In a class there are 30 girls and 70 boys. If girls

averaged 80 in an examinatio n and boys averaged 72,

find the mean mark of the entire class.

Exercise: Assume that group 1 has 25 employees with an average monthly salary
of $820, group 2 has 32 employees with an average monthly salary of $450, and
group 3 has 77 employees. If the combined salary of the three groups is $708.6,
find out the average salary of group 3.
 *If a wrong f igure has been used when calculating the mean the
correct mean can be obtained with out repeating the whole
process using:

[Correct v alue(s)] - [wrong value(s)]

Correct mean  wrong mean 
n
where n is total number of items

Example : An average weight of 10 students was calculated to be 65.

Latter it was discovered that one weight wa s misread as 40 instead

of 80 k.g. Calculate the correct average weight.

Exercise: The mean value of the weekly income of 40 families is $265. But in the
calculation, the income of one family was read as $150 instead of $115. Find the
“Corrected” mean.
*The effect of transforming original series on the mean.

a) If a constant k is added/ subtracted to/from every

observation then the new mean will be the old mean± k
respectively.
b) If every observations are multiplied by a constant k
then the new mean will be k*old mean
Example: A group of friends regularly record the distance
they each run each week to help motivate each other.
They have a weekly mean distance of 11.2 miles and a
standard deviation of 0.5 miles. As a New Year's
challenge, they agree to all run one extra mile the f irst
week of the year. What impact does this have on the
average miles run by the group?
 Weighted Mean
Class x1 x2 …….. xk

Weight W1 W2 ……. wk

The Weighted Mean of a set of n numbers is given by :

n

x i
wi
x weighted  i 1
n
;

w
i 1
i

Example: At the beginning of the year Aster purchased 150 shares of a

company’s stock at $56 per share. When the price went up to $60 per
share, she bought 100 more shares. A few weeks later, Aster bought 200
more shares at $61 per share. What is the weighted mean price per
share? Ans: $59.11
Exercise : During one hour period on a hot Saturday afternoon

a boy served for drinks. He sold :

five drinks for $0.50

fifteen drinks for $0.75

fifteen drinks for $0.90

fifteen drinks for $1.10

Compute the weighted mean of the price of the drinks. (Ans : $0.875)

Exercise 2: Find the weighted mean of the data.

Assessment Score (x) Weight (w)

Homework 60 5%
Midterm Exam 75 35%
Project 80 20%
Speech 70 15%
Final Exam 62 25%
 Geometric Mean
It is mainly used for average ratios, rate of changes,
economic indexes, etc

Let x 1 , x 2 , x 3 ,  , x n be the set of items. The Geometric mean is given by :

n 
1/n
GM x 1x 2 x 3 x n x 1x 2 x 3 x n 

.
Example 1 : Determine the geometric mean of following set of numbers.
1, 3, 9, 27, 81

Example 2 : A fund manager tr ies to convince you to invest in their fund by showing you

th e annual returns over the last five years

10%, 20%, 30%, 12%, 10% . What is the average return per year? Ans : 16.15%
 Harmonic Mean
It is mainly used for rate of changes (growth rates) per
unit time.
Let x 1 , x 2 , x 3 ,  , x n be the set of items. The Harmonic mean is given by :

n
HM  n
1
x
i 1 i

.
Example 1 : Determine the harmonic mean of following set of numbers.

2, 5, 10, 20, 8

Example 2 : If a car trave ls at a speed of 80 km/hr from A to B, and the same car travel s at

a speed of 60 km/hr from B to A. What is the average speed of a car?

 Mode
Mode is the most frequent value of a set of data. It is
mainly used for qualitative variables.
Example: Number of antenatal health care visits of
pregnant women is given below:
4, 0, 9, 6, 4, 5, 3, 3, 3, 2, 0, 8, 0, 3, 4, 4, 4, 2, 1, 1, 3, 4, 4, 0,
12
Find the modal value.

Mode for grouped data

Let x 1 , x 2 , x 3 ,  , x n be the set of items. The Harmonic mean is given by :

w ( f mo  f1 )
Mode ( x̂ )  L mo 
2 f mo  f1  f2
Number of customer complaints per month in ABC
company is summarized below:
Class Interval Frequency
0-5 15
6-11 20
12-17 30
18-23 15
24-29 12
30-35 8

Compute the modal value for the number of customer

complaints per month.
 Median
Median is the middle most value of a set of data
after the data has been arranged either in
ascending or descending order.
Median for raw/ungrouped data
NB: The median class is a class with the smallest
cumulative frequency greater than or equal to n/2.
 Quartiles
 Quartiles are statistical measures which divide the whole data
into four equal parts.
 These are first quartile (Q_1), second quartile (Q_2), & third
quartile (Q_3).

th
 i ( n  1) 
Qi   value of observatio n, i  1, 2, 3.
 4 
 5. MEASURES OF DISPERSION/VARIATION
 Dispersion/Variation is the degree to which numerical data
tend to vary about the central value (MCT).
 Used to determine the scatter of values in a distribution
Larger variation

Smaller variation

Objectives:
• To judge the reliability of measures of central tendency
• To control variability itself.
• To compare two or more groups of numbers in terms of their
variability.
• To make further statistical analysis.
 TYPES OF MEASURES OF DISPERSION/VARIATION

 Range
 Quartile deviation/Semi-inter-quartile range
 Mean deviation
 Standard deviation
 Coefficient of variation
 1.Range
1.1 Range for ungrouped data
Range is the difference between the largest (Max)
and smallest (Min) values.
Range = Max  Min
Example:
Find the range for the sample values: 26, 25, 35, 27,
29, 29.
1.2Range for grouped data
Range is the difference between the upper class
limit of the highest class and lower class limit of the
lowest class.
 Examples
1.The time (in minutes) taken by sampled workers of company X to arrive
at workplace are shown below:
25, 18, 25, 8, 15 ,15, 10, 35, 40, 45
Compute:
i. Range ii. Quartile deviation ii. Mean deviation about mean iV. Sample standard
deviation V. Coefficient of variation. Ans: R=37 , QD= 11.25 , MD(mean)=10.4,
S=12.8, CV= 48.12%
2. The following distribution shows age of 50 employees working in a
whole sale centre:
Compute:
i. Range ii. Quartile deviation ii. Mean deviation about median iV. Sample
standard deviation V. Coefficient of variation. Ans:R=29,QD(Exc),
Age in years Number of employees

MD(median=63.4)=9.26, SD= 7.2, 40-44CV=13.1% 4

45-49 7

50-54 14

55-59 11

60-64 8

65-69 6
2.Quartile deviation/semi-interquartile range
•It is half of the difference between the upper and lower
quartiles
3. Mean Deviation

•Deviation is taken from an average such as Mean, Median or

Mode.

•While taking deviation we have to ignore negative items and

consider all of them as positive. The formula is given below
n

| x i
c |
MD ( c )  i 1
n
•Mean deviation about the central value, c, for grouped data is:
k

 fi | xi c |
MD ( c )  i 1
k


i 1
fi
4. Variance

 The variance is a measure that uses the mean as a point of
reference.

 It is the average of squared deviations from the mean.

 Most commonly used measure of variatiom

 The variance is small when all values are close to the mean.

 The variance is large when all values are spread out from the
mean.






Sample variance


Let x1 , x 2 , , x n
be the sample values. The sample variance is defined by:
n

 x
2
 x 2 2 2

i 1
i
x 1  x   x 2  x     x N  x 
S
2
 
n 1 n 1

S  S
2
 5.Coefficient of variation
 Compares the relative variation of two variables/dataset.
 Do not depend on the units of the variables (free of units).
S
C .V  * 100 %
x
The relative variability in the 1st data set is larger than the relative variability in
the 2nd data set if C.V1> C.V2 (and vice versa).
CV is inversely proportional to consistency of data.

NB:
• In f inance, the coef ficient of variation allows investors to determine how much
volatility, or risk, is assumed in comparison to the amount of return expected from
investments. The lower the ratio of the standard deviation to mean return, the
better risk-return trade-off (i.e. in finance, the coefficient of variation is important in
investment selection. From a f inancial perspective, the f inancial metric represents
the risk-to-reward ratio where the volatility shows the risk of an investment and the
mean indicates the reward of an investment. By determining the coef ficient of
variation of different investment, an investor identif ie s the risk-to-reward ratio of
each investment and develops an investment decision. Generally, an investor
seeks an investment with a lower coef ficient of variation because it provides the
most optimal risk-to-reward ratio with low volatility but high returns.)
•CV is a measure of the relative dispersion of data points around the mean.
 Example

Suppose you are measuring household expenditures and want to

compare the variability of spending among high-income and low-
income households. The data are summarized below.
Statistical Expenditures
measure High income hh Low income hh
Mean $500,000 $50,000
Standard $125,000 $10,000
deviation

Which group has more consistency in terms of household

spending?
Exercise
Melaku wants to find a new investment for his portfolio. He is
looking for a safe investment that provides stable returns. He
considers the following options for investment:
 Stocks: Melaku was offered stock of ABC Corporation. It is a
mature company with strong operational and financial
performance. The volatility of the stock is 10% and the expected
return is 14%.
 ETFs: Another option is an Exchange-Trade Fund (ETF). The ETF
offers an expected return of 13% with a volatility of 7%.
 Bonds: Bonds with excellent credit ratings offer an expected
return of 3% with 2% volatility.
Which company should Melaku invest?