Coefficient Of Variation Formula
Coefficient of Variation
In statistics, the Coefficient Of Variation Formula (CV), also known as relative standard deviation (RSD), measures the dispersion of a probability distribution. Lower coefficients of variation indicate less variability and high stability in the data.
What is Coefficient of Variation?
The Coefficient Of Variation Formula is a measure of relative dispersion. The standard deviation is expressed as a ratio to the mean. Variation coefficients are dimensionless quantities expressed as percentages. Using the degree of variation between two data sets allows us to compare them.
Both a sample and a population can be used to determine the Coefficient Of Variation Formula. Investors use the coefficient of variation to assess risk-to-reward ratios in industries such as finance. We will learn more about the coefficient of variation, its formula, and examples in this article.
Coefficient of Variation Definition
Variation coefficient is a type of measure of dispersion. Measures of dispersion are used to gauge the degree of variability in data. To measure the dispersion of data from an average or mean value, the Coefficient Of Variation Formula is used. The coefficient of variation is abbreviated as CV. Along with this, Extramarks also provides students with various learning tools like-
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Coefficient Of Variation Formula
The Coefficient Of Variation Formula can be calculated using two formulas. There are two types of coefficients of variation: the population coefficient of variation and the sample Coefficient Of Variation Formula. In statistics, the population refers to the entire group being studied. Statistics refers to the entire group being studied as the population. A sample is a portion of a population selected at random. The sample represents the entire population of the study. There will always be a match between the population mean and the sample mean. Since the standard deviation differs, there are two coefficients of variation formulas.
How to Find Coefficient of Variation?
The Coefficient Of Variation Formula is particularly useful when comparing results from two surveys with different values. It is a standardized measure of the dispersion of a probability distribution or frequency distribution, also known as the Coefficient Of Variation Formula (CV). The lower the coefficient of variation, the less variable and more stable the data. Coefficients of variation can be found by following the steps below:
- The first step is to check for the sample set.
- The second step is to calculate the standard deviation and mean.
- The third step is to enter the values into the Coefficient Of Variation Formula.
Coefficient of Variation and Standard Deviation
In order to measure the spread of values in a dataset, both the Coefficient Of Variation Formula and the standard deviation are used. Below is a table showing the main differences between the two measures.
Coefficient of Variation:
It is a measure of dispersion relative to the mean.
The standard deviation is calculated as the ratio of the standard deviation to the mean.
To compare the variation of different data sets, the Coefficient Of Variation Formula is commonly used.
Dispersion is measured in absolute terms.
Data points are measured according to how far they are from the mean.
Data dispersion in a single data set is measured by the standard deviation.
Coefficient of Variation Uses
It is possible to compare two sets of data with similar values by using the standard deviation. In contrast, if two data sets with different units need to be compared, the Coefficient Of Variation Formula should be used. The coefficient of variation is used in the following applications:
- When an investor wants to invest in a particular ETF, he uses the Coefficient Of Variation Formula to determine which will provide a better risk-return trade-off.
- Coefficients of variation are also used to determine the consistency of data. A distribution with a smaller coefficient of variation is more consistent than one with a larger one.
Examples on Coefficient of Variation
Let’s say there are three data sets [80, 90, 100]. There is a mean of 90 and a standard deviation of 8.165 in the population. It has a Coefficient Of Variation Formula of 0.09. On a percentage basis, the coefficient of variation is 9%.
Practice Questions on Coefficient of Variation
A Coefficient Of Variation Formula is useful because the standard deviation of data must always be understood in light of its mean. The CV, on the other hand, is independent of the unit in which the measurement was taken, so it is a dimensionless number. The Coefficient Of Variation Formula should be used instead of the standard deviation when comparing data sets with different units or widely different means.
As the mean value approaches zero, the coefficient of variation approaches infinity and is therefore sensitive to small changes in the mean. In many cases, this is the case when the values do not originate from a ratio scale. In contrast to the standard deviation, it cannot be used directly to calculate confidence intervals for the mean. Since CV is invariant to the number of replicates, it cannot be used as an indicator of the certainty of measurement when the number of replicates varies across samples. However, as the number of replicates increases, the certainty of the average improves. There is a strong argument for using standard error in per cent in this case.
In applied probability fields such as renewal theory, queueing theory, and reliability theory, the coefficient of variation is also common. It is often the exponential distribution that is more important in these fields than the normal distribution. Since the standard deviation of an exponential distribution equals its mean, its coefficient of variation is 1. CV > 1 (such as a hyper-exponential distribution) is considered high-variance, while CV 1 (such as an Erlang distribution) is considered low-variance. The squared coefficient of variation, often abbreviated SCV, is used in some formulas in these fields. Variations of CV are called CV(RMSD) in modelling. Root Mean Square Deviation (RMSD) replaces the standard deviation term in CV(RMSD). While many natural processes indeed show a correlation between the average value and the amount of variation around it. Accurate sensor devices must be designed such that the Coefficient Of Variation Formula is near zero, i.e., yielding a constant absolute error over their working range.
CVs are known as unitised risks in actuarial science.
To measure the homogeneity of a powder mixture, CV is especially important in Industrial Solids Processing. The calculated CV can be compared to a specification to determine whether a sufficient degree of mixing has been achieved.
FAQs (Frequently Asked Questions)
1. In statistics, what is the Coefficient Of Variation Formula?
The Coefficient of variation measures the degree of variability in data in a dimensionless manner. Comparing two data sets with different units is very useful.
2. What is a Good Coefficient of Variation?
It is acceptable to have a coefficient of variation of less than 20%. Lab results should have a coefficient of variation of less than 10%.