Copyright© Dorling Kindersley India Pvt Ltd

Chapter 4
Measures of
Dispersion

Business Statistics - Naval Bajpai

Learning Objectives

Copyright© Dorling Kindersley India Pvt Ltd

Upon completion of this chapter, you will be able to:
 Understand the concept of range, quartile deviation, mean
deviation, standard deviation, and variance.
 Compute range, quartile deviation, mean deviation,
standard deviation, and variance.
 Understand skewness, kurtosis, and box-and-whisker plots.
 Compute the coefficient of correlation and understand its
interpretation.
 Use MS Excel, Minitab, and SPSS for computing range,
quartile deviation, mean deviation, standard deviation,
skewness, kurtosis, and coefficient of correlation.
 Use Minitab and SPSS for box-and-whisker plot construction.

Business Statistics - Naval Bajpai

What Is Dispersion?

Copyright© Dorling Kindersley India Pvt Ltd

 The meaning of dispersion is “scatteredness.”
 The degree to which numerical data tends to spread around an
average value is called variation or dispersion of data.

Figure 4.1 : Three distributions A, B, and C with same mean and different
dispersion

Business Statistics - Naval Bajpai

Measures of Dispersion

Copyright© Dorling Kindersley India Pvt Ltd

 There are two types of measures of dispersion:

1. Absolute measures of dispersion: Absolute

measures of dispersion are presented in the same unit as
the unit of distribution.
2. Relative measures of dispersion: Relative measures
of dispersion are useful in comparing two sets of data
which have different units of measurement.

 Relative measures of dispersion are pure unitless

numbers and are generally called coefficient of
dispersion.

Business Statistics - Naval Bajpai

Methods of Measuring Dispersion

Copyright© Dorling Kindersley India Pvt Ltd

The following are some of the important and widely used
methods of measuring dispersion:

 Range
 Interquartile range and quartile deviation
 Mean deviation or average deviation
 Standard deviation

Business Statistics - Naval Bajpai

Range

Copyright© Dorling Kindersley India Pvt Ltd

 Range is defined as the difference between the
smallest and the greatest values in a distribution.
 Symbolically,

Where L is the largest observation, S the smallest observation, and R the

range.

Range is an absolute measure of dispersion. The relative

measure of dispersion for range is called the coefficient
of range and is calculated by the following formula:

Business Statistics - Naval Bajpai

Range for Individual Series

Copyright© Dorling Kindersley India Pvt Ltd

Example 4.1: Find out the range and its coefficient from the
following series.
110, 117, 129, 300, 357, 100, 500, 630, 750

Range can be computed by subtracting the lowest value of the

series from the highest value of the series as shown below:

Business Statistics - Naval Bajpai

Interquartile Range and Quartile Deviation

Copyright© Dorling Kindersley India Pvt Ltd

 Interquartile range is the difference between the third
quartile and the first quartile.
 Quartile deviation or semi-interquartile range can be
obtained by dividing the interquartile range by 2.
 Quartile deviation is an absolute measure of dispersion.
Relative measure is called the coefficient of quartile
deviation. Coefficient of quartile deviation can be used to
measure the degree of variation in two different
distributions when both have different units of
measurement.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
Figure 4.5: Range, first quartile, median, third quartile, and
interquartile range

Business Statistics - Naval Bajpai

Mean Absolute Deviation (or Average

Copyright© Dorling Kindersley India Pvt Ltd

Absolute Deviation)
 Average absolute deviation
is the average amount of
scatter of the items in a
distribution, from either
the mean or the median or
the mode, ignoring the signs
of deviations.
 When this deviation is taken
from the mean, it is called
mean absolute deviation.

Mean absolute deviation is an absolute measure of dispersion.

In this context, a relative measure, also known as coefficient of
mean absolute deviation, is obtained by the following formula:

Business Statistics - Naval Bajpai

 Mean Absolute Deviation for Individual Series

Copyright© Dorling Kindersley India Pvt Ltd

xample 4.5: Find the mean absolute deviation and coefficient of
mean absolute deviation for Example 3.1 discussed in Chapter 3.

In Example 3.1 in Chapter 3,

the average rainfall in 10
years is computed as 148.5
cm. So, mean = 148.5.

Business Statistics - Naval Bajpai

Standard Deviation

Copyright© Dorling Kindersley India Pvt Ltd

 Standard deviation is the
square root of the sum of
square deviations of various
values from their arithmetic
mean divided by the sample
size minus one.

 Variance is the square of

standard deviation. Sample
variance is the sum of
squared deviations of various
values from their arithmetic
mean divided by the sample
size minus one.

Business Statistics - Naval Bajpai

Coefficient of Variation

Copyright© Dorling Kindersley India Pvt Ltd

 To compare the dispersion of two distributions, the
relative measure of standard deviation is used and is
referred to as the coefficient of variation.
 A distribution with lesser CV shows greater
consistency, homogeneity, and uniformity, whereas a
distribution with greater CV is considered more variable
than others.

Business Statistics - Naval Bajpai

 Standard Deviation and Variance for an

Copyright© Dorling Kindersley India Pvt Ltd

Individual Series

Example 4.7: Find the standard deviation and variance for the
data given in Example 4.1.

Business Statistics - Naval Bajpai

Example 4.7 (Contd.)

Copyright© Dorling Kindersley India Pvt Ltd

Business Statistics - Naval Bajpai
Empirical Rule

Copyright© Dorling Kindersley India Pvt Ltd

Figure 4.11: Area under the normal curve
Business Statistics - Naval Bajpai
Empirical Relationship Between Measures Of

Copyright© Dorling Kindersley India Pvt Ltd

Dispersion

Business Statistics - Naval Bajpai

Chebyshev’s Theorem

Copyright© Dorling Kindersley India Pvt Ltd

Business Statistics - Naval Bajpai
Measures of Shape

Copyright© Dorling Kindersley India Pvt Ltd

Measures of shape are the tools used for describing the
shape of a distribution of the data. There are two
measures of shape: skewness and kurtosis.

Figure 4.12 : (a) Left skewed distribution, (b) right skewed distribution, and (c)
symmetrical distribution

A distribution of data where the right half is the mirror

image of the left half is said to be symmetrical. If the
distribution is not symmetrical, it is said to be
asymmetrical or skewed.

Business Statistics - Naval Bajpai

 Coefficient of Skewness

Copyright© Dorling Kindersley India Pvt Ltd

 Karl Pearson developed a method for measuring skewness, referred
to as the Pearsonian coefficient of skewness. This coefficient
compares mean and mode and is divided by standard deviation.
Pearsonian coefficient of skewness is given as:

 For a positively skewed distribution, the coefficient of skewness

will have a plus sign and for a distribution that is negatively
skewed, the coefficient of skewness will have a minus sign. The
actual degree of skewness can be obtained from the numerical value
of the coefficient of skewness.

Business Statistics - Naval Bajpai

Kurtosis

Copyright© Dorling Kindersley India Pvt Ltd

Kurtosis measures the amount of peakedness of a distribution. A
flatter distribution than a normal distribution is called platykurtic.
A more peaked distribution than the normal distribution is referred to
as leptokurtic. Between these two types of distribution is a
distribution which is more normal in shape, referred to as
mesokurtic distribution.

Figure 4.13 :(a) Leptokurtic distribution, (b) Platykurtic distribution,

and (c) Mesokurtic distribution

Business Statistics - Naval Bajpai

The Five-Number Summary

Copyright© Dorling Kindersley India Pvt Ltd

 In the five-number summary, five numbers—the smallest
value, the first quartile, the median, the third quartile, and the
largest value are used to summarize data.

 In the case of a symmetrical distribution, the relationship

between the various measures of the five-number summary is
expressed as:
 the distance from the smallest value to the median and the
distance from the median to the largest value remains equal;
 the distance from the smallest value to the first quartile and the
distance from the third quartile to the largest value remains
equal.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
In the case of an asymmetrical distribution, the relationship
between the various measures of five number summary is expressed
as follows:
 In a right-skewed distribution, the distance from the median to the
largest value is greater than the distance from the smallest value to
the median.

 In a right-skewed distribution, the distance from the third quartile

to the largest value is greater than the distance from the smallest
value to the first quartile.

 In a left-skewed distribution, the distance from the median to the

largest value is less than the distance from the smallest value to the
median.

 In a left-skewed distribution, the distance from the third quartile to

the largest value is less than the distance from the smallest value to
the first quartile.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
Box-and-whisker plots: Box-and-whisker plot is a graphical
representation of the data based on five-number summary.

Figure 4.15 : Elements of box-and-whisker plot

Business Statistics - Naval Bajpai

Using Minitab and SPSS for box-and-whisker

Copyright© Dorling Kindersley India Pvt Ltd

plot construction

 Solved Examples\Minitab\Box and whisker plot.MPJ

 Solved Examples\SPSS\box and whisker.sav
 Ch 4 Solved Examples\SPSS\Output box and whisker.spv

Business Statistics - Naval Bajpai

Measures of Association

Copyright© Dorling Kindersley India Pvt Ltd

 Measures of association are statistics for measuring the
strength of relationship between two variables.
 Correlation measures the degree of association between two
variables.
 Karl Pearson’s coefficient of correlation is a quantitative
measure of the degree of relationship between two variables.
Suppose these variables are x and y, then Karl Pearson’s
coefficient of correlation is defined as

 The coefficient of correlation lies in between +1 and –1.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
Figure 4.19 : Interpretation of correlation coefficient

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
Example 4.9: Table 4.7 shows the sales revenue and
advertisement expenses of a company for the past 10 months.
Find the coefficient of correlation between sales and
advertisement.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
Table 4.8 : Calculation of correlation coefficient between
sales and advertisement

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
Figure 4.27 : Five examples of correlation coefficient

Business Statistics - Naval Bajpai

Using MS Excel, Minitab and SPSS for
Computing Correlation Coefficient

Copyright© Dorling Kindersley India Pvt Ltd

 Solved Examples\Excel\Ex 4.9.xls
 Solved Examples\Minitab\Ex 4.9.MPJ
 Ch 4 Solved Examples\SPSS\Ex4.9.sav
 Ch 4 Solved Examples\SPSS\Output Ex. 4.9.spv

Business Statistics - Naval Bajpai

Using MS Excel, Minitab and SPSS for the Computation of
range, interquartile range, standard deviation, variance, and

Copyright© Dorling Kindersley India Pvt Ltd

coefficient of variation (An explanation through Example
4.16)
Table 4.17 shows the sales (in million rupees) of four leading cement
companies: Ambuja, L&T, Madras Cement, and ACC from 1994–1995 to
2006–2007. Find range, interquartile range, standard deviation, variance,
and coefficient of variation from the sales data of different companies.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
 Solved Examples\Excel\Ex 4.16.xls

 Solved Examples\Minitab\Ex 4.16.MPJ

 Solved Examples\Ex 4.16.sav

 Ch 4 Solved Examples\SPSS\Output Ex. 4.16.spv

Business Statistics - Naval Bajpai

Partial Correlation

Copyright© Dorling Kindersley India Pvt Ltd

 Partial correlation measures the degree of association
between two variables while controlling for the effect of
one or more variables. For example, in Example 4.9, we
will insert one more variable of ‘number of salespersons’
employed in respective months. With this incorporation,
Table4.7 will take a new shape as below:

Business Statistics - Naval Bajpai

Partial Correlation

Copyright© Dorling Kindersley India Pvt Ltd

 SPSS output exhibited in Figure 4.29 shows that
correlation coefficient between advertisement and sales is
−0.519 when no third variable is included in the model.
When model is controlled for the third variable,
number of salespersons, partial correlation coefficient
between advertisement and sales is computed as
−0.578.
 It can be interpreted as ‘number of salespersons’ is not a
great influence in controlling for the relationship between
advertisement and sales.

Business Statistics - Naval Bajpai

Partial Correlation

Copyright© Dorling Kindersley India Pvt Ltd

 The concept of semipartial correlation or part correlation is
almost similar as it is explained for partial correlation with
one difference.
 This difference can be outlined in semipartial correlation
coefficient, where one holds the third variable
number of salespersons constant for either
advertisement or sales but not for both, whereas in
computation of partial correlation coefficient, one holds
third variable number of salespersons constant for
advertisement and sales both.

Business Statistics - Naval Bajpai

 Copyright© Dorling Kindersley India Pvt Ltd
 FIGURE 4.29 : SPSS output for partial correlation

Business Statistics - Naval Bajpai

Using SPSS for Computing Partial

Copyright© Dorling Kindersley India Pvt Ltd

Correlation Coefficient
 Ch 4 Solved Examples\SPSS\partial
correlation problem.sav
 Ch 4 Solved Examples\SPSS\partial
correlation output.spv

Business Statistics - Naval Bajpai