Variance, often represented as Var, is a statistical measure that quantifies the degree of variation or dispersion in a set of data points. It is calculated by taking the average of the squared differences between each data point and the mean of the dataset. Mathematically, the variance for a population is defined as:
where is the number of observations, represents each data point, and is the mean of the dataset. For a sample, the formula adjusts to account for the smaller size, using in the denominator instead of :
where is the sample mean. A high variance indicates that data points are spread out over a wider range of values, while a low variance suggests that they are closer to the mean. Understanding variance is crucial in various fields, including finance, where it helps assess risk and volatility.
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