Descriptive-Numerical Measures - Part B

z-Scores
The z-score is often called the standardized value.
It denotes the number of standard deviations a data

value xi is from the mean.
xi − x
zi =
s
Excel’s STANDARDIZE function can be used to

compute the z-score.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 1
or duplicated, or posted to a publicly accessible website, in whole or in part.
z-Scores
◼ An observation’s z-score is a measure of the relative

location of the observation in a data set.
◼ A data value less than the sample mean will have a
z-score less than zero.
◼ A data value greater than the sample mean will have
a z-score greater than zero.
◼ A data value equal to the sample mean will have a
z-score of zero.
Slide 2
z-Scores
◼ Example: Apartment Rents

• z-Score of Smallest Value (425)
xi − x 425 − 490.80
z= = = − 1.20
s 54.74
Standardized Values for Apartment Rents

-1.20 -1.11 -1.11 -1.02 -1.02 -1.02 -1.02 -1.02 -0.93 -0.93
-0.93 -0.93 -0.93 -0.84 -0.84 -0.84 -0.84 -0.84 -0.75 -0.75
-0.75 -0.75 -0.75 -0.75 -0.75 -0.56 -0.56 -0.56 -0.47 -0.47
-0.47 -0.38 -0.38 -0.34 -0.29 -0.29 -0.29 -0.20 -0.20 -0.20
-0.20 -0.11 -0.01 -0.01 -0.01 0.17 0.17 0.17 0.17 0.35
0.35 0.44 0.62 0.62 0.62 0.81 1.06 1.08 1.45 1.45
1.54 1.54 1.63 1.81 1.99 1.99 1.99 1.99 2.27 2.27
Slide 3
Detecting Outliers
◼ An outlier is an unusually small or unusually large

value in a data set.
◼ A data value with a z-score less than -3 or greater
than +3 might be considered an outlier.
◼ It might be:
• an incorrectly recorded data value
• a data value that was incorrectly included in the
data set
• a correctly recorded data value that belongs in
the data set
Slide 4
Detecting Outliers
◼ Example: Apartment Rents

• The most extreme z-scores are -1.20 and 2.27
• Using |z| > 3 as the criterion for an outlier, there
are no outliers in this data set.
Standardized Values for Apartment Rents

-1.20 -1.11 -1.11 -1.02 -1.02 -1.02 -1.02 -1.02 -0.93 -0.93
-0.93 -0.93 -0.93 -0.84 -0.84 -0.84 -0.84 -0.84 -0.75 -0.75
-0.75 -0.75 -0.75 -0.75 -0.75 -0.56 -0.56 -0.56 -0.47 -0.47
-0.47 -0.38 -0.38 -0.34 -0.29 -0.29 -0.29 -0.20 -0.20 -0.20
-0.20 -0.11 -0.01 -0.01 -0.01 0.17 0.17 0.17 0.17 0.35
0.35 0.44 0.62 0.62 0.62 0.81 1.06 1.08 1.45 1.45
1.54 1.54 1.63 1.81 1.99 1.99 1.99 1.99 2.27 2.27
Slide 5
Measures of Association
Between Two Variables
Thus far we have examined numerical methods used
to summarize the data for one variable at a time.
Often a manager or decision maker is interested in

the relationship between two variables.
Two descriptive measures of the relationship

between two variables are covariance and correlation
coefficient.
Slide 6
Covariance
The covariance is a measure of the linear association

between two variables.
Positive values indicate a positive relationship.
Negative values indicate a negative relationship.
Slide 7
Covariance
The covariance is computed as follows:
 ( xi − x )( yi − y ) for
sxy =
n −1 samples
 ( xi −  x )( yi −  y ) for
 xy = populations
N
Slide 8
Correlation Coefficient
Correlation is a measure of linear association and not

necessarily causation.
Just because two variables are highly correlated, it

does not mean that one variable is the cause of the
other.
Slide 9
The correlation coefficient is computed as follows:

sxy  xy
rxy =  xy =
sx s y  x y
for for
samples populations
Slide 10
The coefficient can take on values between -1 and +1.
Values near -1 indicate a strong negative linear

relationship.
Values near +1 indicate a strong positive linear

relationship.
The closer the correlation is to zero, the weaker the

relationship.
Slide 11
Covariance and Correlation Coefficient
◼ Example: Golfing Study

A golfer is interested in investigating the
relationship, if any, between driving distance and
18-hole score.
Average Driving Average
Distance (yds.) 18-Hole Score
277.6 69
259.5 71
269.1 70
267.0 70
255.6 71
272.9 69
Slide 12
x y ( xi − x ) ( yi − y ) ( xi − x )( yi − y )
277.6 69 10.65 -1.0 -10.65
259.5 71 -7.45 1.0 -7.45
269.1 70 2.15 0 0
267.0 70 0.05 0 0
255.6 71 -11.35 1.0 -11.35
272.9 69 5.95 -1.0 -5.95
Average 267.0 70.0 Total -35.40
Std. Dev. 8.2192 .8944
Slide 13

• Sample Covariance
sxy =
 ( x − x )( y
i i − y)
=
−35.40
= − 7.08
n−1 6−1
• Sample Correlation Coefficient
sxy −7.08
rxy = = = -.9631
sx sy (8.2192)(.8944)
Slide 14
Using Excel to Compute the
• Excel Formula Worksheet
A B C D
Average 18-Hole
1 Drive Score
2 277.6 69 Pop. Covariance =COVARIANCE.S(A2:A7,B2:B7)
3 259.5 71 Samp. Correlation =CORREL(A2:A7,B2:B7)
4 269.1 70
5 267.0 70
6 255.6 71
7 272.9 69
8
Slide 15
Using Excel to Compute the
• Excel Value Worksheet
A B C D
Average 18-Hole
1 Drive Score
2 277.6 69 Pop. Covariance -5.9
3 259.5 71 Samp. Correlation -0.9631
4 269.1 70
5 267.0 70
6 255.6 71
7 272.9 69
8
Sample Covariance = sxy = n/(n – 1)xy = 6/(6 – 1)(-5.9) = -7.08
Slide 16
Weighted Mean
◼ When the mean is computed by giving each data

value a weight that reflects its importance, it is
referred to as a weighted mean.
◼ In the computation of a grade point average (GPA),
the weights are the number of credit hours earned for
each grade.
◼ When data values vary in importance, the analyst
must choose the weight that best reflects the
importance of each value.
Slide 17
Weighted Mean
x=  wx i i
w i
where:
xi = value of observation i
wi = weight for observation i
Slide 18

Descriptive-Numerical Measures - Part B

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z-Scores

The z-score is often called the standardized value.

It denotes the number of standard deviations a data

Excel’s STANDARDIZE function can be used to

◼ An observation’s z-score is a measure of the relative

◼ Example: Apartment Rents

Standardized Values for Apartment Rents

◼ An outlier is an unusually small or unusually large

◼ Example: Apartment Rents

Standardized Values for Apartment Rents

Often a manager or decision maker is interested in

Two descriptive measures of the relationship

The covariance is a measure of the linear association

Positive values indicate a positive relationship.

Negative values indicate a negative relationship.

The covariance is computed as follows:

Correlation is a measure of linear association and not

Just because two variables are highly correlated, it

The correlation coefficient is computed as follows:

The coefficient can take on values between -1 and +1.

Values near -1 indicate a strong negative linear

Values near +1 indicate a strong positive linear

The closer the correlation is to zero, the weaker the

◼ Example: Golfing Study

◼ Example: Golfing Study

◼ Example: Golfing Study

Sample Covariance = sxy = n/(n – 1)xy = 6/(6 – 1)(-5.9) = -7.08

◼ When the mean is computed by giving each data

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