The coefficient of variation is used in the probability section of statistics, and is a way of measuring the dispersion of a probability distribution. This means that it allows you to see how consistent a range of probabilities are surrounding the same question. It is defined as the ratio/relationship of the standard deviation (represented by an o with a line going horizontal from the top right) to the mean (µ). The standard deviation should always be a positive value, and the mean is the standard arithmetic mean. The equation for this is:
Cv = s.d / |µ|
The | | indicates that anything inside it becomes a positive value. If you want the coefficient of variation to be displayed as a percentage, then all you do is take the answer from the formula above, and multiply it by 100.
When using the coefficient of variation, you want to expect a lower value as the outcome of the equation. A lower number, in whatever area of statistics, assessment or otherwise, indicates a more consistent spread of data, and therefore a more stable outcome of values - whether this means that a selection of values end up being bunched together rather consistently, or there is very little spread among a group of values.
The coefficient of variation can be used in other areas than just statistics probability. In the world of business, it allows the prediction of the amount of risk expected, in comparison to the return expected upon an investment. It is a way of businessmen gauging whether to go ahead with a deal or investment, based on the potential positives and negatives that might arise from taking a risk with a certain decision. When using the coefficient of variation in risk-to-reward assessment, you would ideally be looking for a lower number from the coefficient of variation. This would mean that you are more likely to expect a decent return back in comparison to the risk taken with a certain decision.
Cv = s.d / |µ|
The | | indicates that anything inside it becomes a positive value. If you want the coefficient of variation to be displayed as a percentage, then all you do is take the answer from the formula above, and multiply it by 100.
When using the coefficient of variation, you want to expect a lower value as the outcome of the equation. A lower number, in whatever area of statistics, assessment or otherwise, indicates a more consistent spread of data, and therefore a more stable outcome of values - whether this means that a selection of values end up being bunched together rather consistently, or there is very little spread among a group of values.
The coefficient of variation can be used in other areas than just statistics probability. In the world of business, it allows the prediction of the amount of risk expected, in comparison to the return expected upon an investment. It is a way of businessmen gauging whether to go ahead with a deal or investment, based on the potential positives and negatives that might arise from taking a risk with a certain decision. When using the coefficient of variation in risk-to-reward assessment, you would ideally be looking for a lower number from the coefficient of variation. This would mean that you are more likely to expect a decent return back in comparison to the risk taken with a certain decision.
