Question

measure of dispersion are often used in finance as proxy for risk. explain

Answer 1

Measures of dispersion are often used in finance as a proxy for risk:

Measures of dispersion are generally used to describe the variability in sample. The three commonly used measures of dispersion are as follows,

Explanation:

Range - Difference between the largest and smallest observation. The formula is Range = Maximum value - Minimum value

Interquartile range - Difference between the  and  percentile (also known as the  and  quartile). The formula is Interquatrile range = Q3 - Q1

Standard deviation - SD is the square root of sum of squared deviation from the mean divided by the number of observations.

Usage in finance:

In finance, the Regression analysis technique helps in explaining the dispersion of dependent variable, that is measured by its variance, with the help of one or more independent variables each of which has positive dispersion. This proves to be a proxy for risk.

Appropriate usage of measures of dispersion:

Median and interquartile range is used for skewed numerical data, ordinal data or mean. When mean is utilized as a measure of central tendency or symmetric numerical data, SD is used.

To Know more:

Measures of dispersion in statistics with examples

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What are the objectives of measures of dispersion?

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Answer 2

Dispersion are often used in finance

Explanation:

• The dispersion is used in statistics measurement.
• It is used to describe variability in the sample.
• The range is another sources that is used in statistics.
• The range is the difference between maximum value and the minimum value.
• The Interquartile range is defined as the difference between Q3-Q1
• The standard deviation is defined as the square root of the sum of the squared deviation from the mean that is divided by the number of the observation
• It is used in finance. The regression technique that is helpful in understanding of the dispersion.
• Dispersion is measured by its variance with the help of one ore two variables.

Learn more: Dispersion

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