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Understanding Variance and
         Standard Deviation




LEARNING
Made Simple
You will be introduced thro’

• The concept of variance
• Computation of Variance
• Computation of Standard Deviation




                                      LEARNING
                                      Made Simple
Variance

• Variance is often used as a measure of
  risk in finance. It is a statistical concept
  whose purpose is to measure the
  dispersion of observation around the mean
  or the average value.




                                          LEARNING
                                          Made Simple
The concept of variance

• Lets consider that in a poll, we took 10
  students and their ages are as per below
• 21, 20, 19, 23, 22, 21, 20, 18, 19, 19
• Lets put them in order...
                                Range tells us about
                                the dispersion of
                                values in sample




                                            LEARNING
                                            Made Simple
The concept of variance

• Range only depends on the highest and the
  lowest value in the sample, and not how
  observations are distributed.
• This bring us to variance.
• Variance is a measure, very much like arithmetic
  mean which takes every observation into
  account. It gives equal weight to all observations
  and measures the dispersion around the central
  tendency.
                                               LEARNING
                                               Made Simple
Example




          LEARNING
          Made Simple
Let’s put’em to Histogram
• Histogram is a visual representation of the
  variable of interest (Student’s age) and
  their frequency.




LEARNING
Made Simple
Lets join the bars...




            If we expand our selection to more observations or
            full population, above graph can be more smooth and
            can have bell shape…..
                                                        LEARNING
                                                        Made Simple
Lets get back to the concept of Variance
                                           LEARNING
                                           Made Simple
Variance




           LEARNING
           Made Simple
How to Compute Variance?




                       LEARNING
                       Made Simple
How to Compute Variance?




                       LEARNING
                       Made Simple
How to Compute Variance?




                       LEARNING
                       Made Simple
How to Compute Variance?




                       LEARNING
                       Made Simple
Computation of Variance for a set of
     historical observation.




                                   LEARNING
                                   Made Simple
Solution




           LEARNING
           Made Simple
Computation of Variance for
       probability distribution
• Below is the table of attendance in football
  stadium




                                                 LEARNING
                                                 Made Simple
LEARNING
Made Simple
Computation of Standard Deviation




                              LEARNING
                              Made Simple
LEARNING
Made Simple
LearningMadeSimpleTM
Learning Made Simple is initiative taken by few people earlier
  related to the Corporate World whose aim is to provide quality
  education and training to those who wish to excel in their career
  path. Learning Made Simple is an association who works on a no
  profit no loss basis and provide training and development in the
  era of Financial Planning, Financial Management, AMFI, NCFM,
  Management Concepts, Soft Skills, Leadership, Personality
  Development, Goal Setting, Marketing Management, Behavioral
  Science, NLP and various other segments. You can get in touch
  with us by sending email on kaushal@thefinancialplanners.in
Powered By,

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 M     LEARNING
  S    Made Simple

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Variance And Standard Deviation

  • 1. Understanding Variance and Standard Deviation LEARNING Made Simple
  • 2. You will be introduced thro’ • The concept of variance • Computation of Variance • Computation of Standard Deviation LEARNING Made Simple
  • 3. Variance • Variance is often used as a measure of risk in finance. It is a statistical concept whose purpose is to measure the dispersion of observation around the mean or the average value. LEARNING Made Simple
  • 4. The concept of variance • Lets consider that in a poll, we took 10 students and their ages are as per below • 21, 20, 19, 23, 22, 21, 20, 18, 19, 19 • Lets put them in order... Range tells us about the dispersion of values in sample LEARNING Made Simple
  • 5. The concept of variance • Range only depends on the highest and the lowest value in the sample, and not how observations are distributed. • This bring us to variance. • Variance is a measure, very much like arithmetic mean which takes every observation into account. It gives equal weight to all observations and measures the dispersion around the central tendency. LEARNING Made Simple
  • 6. Example LEARNING Made Simple
  • 7. Let’s put’em to Histogram • Histogram is a visual representation of the variable of interest (Student’s age) and their frequency. LEARNING Made Simple
  • 8. Lets join the bars... If we expand our selection to more observations or full population, above graph can be more smooth and can have bell shape….. LEARNING Made Simple
  • 9. Lets get back to the concept of Variance LEARNING Made Simple
  • 10. Variance LEARNING Made Simple
  • 11. How to Compute Variance? LEARNING Made Simple
  • 12. How to Compute Variance? LEARNING Made Simple
  • 13. How to Compute Variance? LEARNING Made Simple
  • 14. How to Compute Variance? LEARNING Made Simple
  • 15. Computation of Variance for a set of historical observation. LEARNING Made Simple
  • 16. Solution LEARNING Made Simple
  • 17. Computation of Variance for probability distribution • Below is the table of attendance in football stadium LEARNING Made Simple
  • 19. Computation of Standard Deviation LEARNING Made Simple
  • 21. LearningMadeSimpleTM Learning Made Simple is initiative taken by few people earlier related to the Corporate World whose aim is to provide quality education and training to those who wish to excel in their career path. Learning Made Simple is an association who works on a no profit no loss basis and provide training and development in the era of Financial Planning, Financial Management, AMFI, NCFM, Management Concepts, Soft Skills, Leadership, Personality Development, Goal Setting, Marketing Management, Behavioral Science, NLP and various other segments. You can get in touch with us by sending email on kaushal@thefinancialplanners.in
  • 22. Powered By, L M LEARNING S Made Simple