Trimmed Mean

AAA

DEFINITION of 'Trimmed Mean'

A method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula.

INVESTOPEDIA EXPLAINS 'Trimmed Mean'

The trimmed mean looks to reduce the effects of outliers on the calculated average. This method is best suited for data with large, erratic deviations or extremely skewed distributions. A trimmed mean is stated as a mean trimmed by X%, where X is the sum of the percentage of observations removed from both the upper and lower bounds.

For example, a figure skating competition produces the following scores: 6.0, 8.1, 8.3, 9.1, 9.9. A mean trimmed 40% would equal 8.5 ( (8.1+8.3+9.1)/3 ), which is larger than the arithmetic mean of 8.28. To trim the mean by 40%, we remove the lowest 20% and highest 20% of values, eliminating the scores of 6.0 and 9.1. As shown by this example, trimming the mean can reduce the effects of outlier bias in a sample.

RELATED TERMS
  1. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  2. Skewness

    Describe asymmetry from the normal distribution in a set of statistical ...
  3. Weighted Average

    An average in which each quantity to be averaged is assigned ...
  4. Mean

    The simple mathematical average of a set of two or more numbers. ...
  5. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  6. Harmonic Average

    The mean of a set of positive variables. Calculated by dividing ...
RELATED FAQS
  1. Who determines the LIBOR rate?

    The LIBOR rate, or London Interbank Offered Rate, is a benchmark rate at which individual contributor panel banks can borrow ... Read Full Answer >>
  2. Where on the internet can I find LIBOR rate information?

    The London Interbank Offered Rate, or LIBOR, is charged by individual contributor banks for loans; it is calculated using ... Read Full Answer >>
  3. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
  4. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    In economics and commercial law, the Herfindahl-Hirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >>
  5. What does the rule of 70 indicate about a country's future economic growth?

    The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >>
  6. How is the rule of 70 related to the growth rate of a variable?

    The rule of 70 is related to the growth rate of a variable because it uses the growth rate in its approximation of the number ... Read Full Answer >>
Related Articles
  1. Retirement

    Combining Your Plan Assets? Not So Fast!

    You might reduce the costs of maintaining more than one account, but you could also be forfeiting tax benefits.
  2. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  3. Personal Finance

    Revive Your Portfolio

    Increase your annual returns by rebalancing your investments now.
  4. Options & Futures

    Financial Concepts

    Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear.
  5. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  6. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  7. Investing

    The Strong Dollar’s (Real) Toll On Tech Stocks

    A large portion of U.S. technology companies’ sales occur overseas, given the strong international business and consumer demand from many U.S. tech firms.
  8. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  9. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.
  10. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center