When making a financial decision, in some cases we will be faced with statistical data that it will be essential to understand in order to carry out a correct decision-making process.
When speaking of statistics, initially it is necessary to distinguish between its two main branches or parts, which are descriptive statistics and inferential statistics. The first refers to the methods of collecting, ordering and tabulating data, in order to be able to analyse the information received. The second can be defined as that branch of statistics that, starting from descriptive statistics, allows reaching conclusions and making predictions.
Notwithstanding the foregoing, as regards the consumer of financial products and services, descriptive statistics will play a greater role than inferential statistics.
With the above in mind, here are some basic statistical concepts that often appear in finance:
- Discrete and continuous variables: In statistics, two types of variables are distinguished based on the extension of possible values that this variable can take. Thus, a distinction is made between discrete variables, to refer to those whose values are finite or countable, and continuous variables, to refer to variables whose values are infinite or not countable.
- Mean: It is defined as the number resulting from the sum of all the observations and their division by the number of them. The disadvantage of the mean is that extreme values can result in a mean that is distorted.
- Median: If a set of data were ordered from smallest to largest, the median would be the values that leave the same number of observations on its left and on its right.
- Mode: The mode is defined as the value of a variable to which a greater number of frequencies corresponds. For example: We are offered a financial product that in the past has had the following distribution of returns:
| Return | Frequency |
| <-15% | 0 |
| -15%> to -5% | 1 |
| -5%> to 0% | 2 |
| 0%> to 5% | 3 |
| 5%> to 15% | 2 |
| > 15% | 1 |
From the previous data set, the mode would be the interval that goes from 0%> to 5%, since it is the one that has occurred in a greater number of times in the past.
- Quantiles (quartiles, deciles and percentiles) : Quantiles are values that refer to a set of data and that divide them into equal parts, in such a way that this division implies intervals that comprise the same number of values. The most frequent quantiles are the quartiles (which divide the distribution into four equal parts), the deciles (which divide it into ten equal parts), and the percentiles (which divide it into one hundred equal parts).
- Normal distribution: A bell-shaped curve depicting a symmetric probability distribution of a continuous random variable.
- Variance: The variance is defined as the mean of the squares of the deviations from the mean. Variance is a measure of dispersion of the values of a variable with respect to its mean. If the dispersion is high, the mean is not representative.
