Arithmetic Mean

The Arithmetic Mean, often referred to as the average, is used to derive the central tendency of a sample space.  The term Arithmetic Mean is preferred because it helps distinguish it from other means such as the geometric mean.

Arithmetic Mean

The Arithmetic Mean, often referred to as the average, is used to derive the central tendency of a sample space.  The term Arithmetic Mean is preferred because it helps distinguish it from other means such as the geometric and harmonic mean.


Arithmetic Mean Calculation

The mean is calculated by summing up the total of all samples then dividing by the number of samples as shown below:

Formula for arithmetic mean

Arithmetic Mean Interpretation

While the arithmetic mean is often used to report central tendencies, it is not a robust statistic, meaning that it is greatly influenced by outliers.  Notably, for skewed distributions, the arithmetic mean may not accord with one's notion of "middle". Robust statistics such as the median may be a better description of central tendency or (arithmetic middle).

In the context of stock trading, the arithmetic mean is used in generation of performance statistics.  Within the realm of technical analysis, indicators such as the Simple Moving Average (SMA) use the arithmetic mean.

Illustrations of arithmetic mean and median (middle value).

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