Statistically Significant

AAA

DEFINITION of 'Statistically Significant'

The likelihood that a result or relationship is caused by something other than mere random chance. Statistical hypothesis testing is traditionally employed to determine if a result is statistically significant or not. This provides a "p-value" representing the probability that random chance could explain the result. In general, a 5% or lower p-value is considered to be statistically significant.

INVESTOPEDIA EXPLAINS 'Statistically Significant'

This concept may sound confusing and impractical, but consider a simple example - suppose you work for a company that produces running shoes:

You need to plan production for the number of pairs of shoes your company should make in each size for men and for women. You don't want to base your production plans on the anecdotal evidence that men usually have bigger feet than women, you need hard data to base your plans on. Therefore, you should look at a statistical study that shows the correlation between gender and foot size.

If the report's p-value was only 2%, this would be a statistically significant result. You could reasonably use the study's data to prepare your company's production plans, because the 2% p-value indicates there is only a 2% chance that the connection between foot size and gender was the result of chance/error. On the other hand, if the p-value was 20%, it would not be reasonable to use the study as a basis for your production plans, since there would be a 20% chance that the relationship presented in the study could be due to random chance alone.

RELATED TERMS
  1. Bonferroni Test

    A type of multiple comparison test used in statistical analysis. ...
  2. Correlation Coefficient

    A measure that determines the degree to which two variable's ...
  3. Correlation

    In the world of finance, a statistical measure of how two securities ...
  4. Covariance

    A measure of the degree to which returns on two risky assets ...
  5. Dispersion

    A statistical term describing the size of the range of values ...
  6. Sample Selection Bias

    A type of bias caused by choosing non-random data for statistical ...
Related Articles
  1. Using Historical Volatility To Gauge ...
    Markets

    Using Historical Volatility To Gauge ...

  2. Commodity Prices And Currency Movements
    Forex Education

    Commodity Prices And Currency Movements

  3. What is the correlation between American ...
    Forex

    What is the correlation between American ...

  4. Using Currency Correlations To Your ...
    Forex Education

    Using Currency Correlations To Your ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center