Winsorized Mean


DEFINITION of 'Winsorized Mean'

A method of averaging that initially replaces the smallest and largest values with the observations closest to them. After replacing the values, a simple arithmetic averaging formula is used to calculate the winsorized mean.

Winsorized means are expressed in two ways. A "kth" winsorized mean refers to the replacement of the 'k' smallest and largest observations, where 'k' is an integer. A "X%" winsorized mean involves replacing a given percentage of values from both ends of the data.

BREAKING DOWN 'Winsorized Mean'

The winsorized mean is less sensitive to outliers because it replaces them with less influential values. This method of averaging is similar to the trimmed mean; however, instead of eliminating data, observations are altered, allowing for a degree of influence.

Let's calculate the first winsorized mean for the following data set: 1, 5, 7, 8, 9, 10, 14. Because the winsorized mean is in the first order, we replace the smallest and largest values with their nearest observations. The data set now appears as follows: 5, 5, 7, 8, 9, 10, 10. Taking an arithmetic average of the new set produces a winsorized mean of 7.71 ( (5+5+7+8+9+10+10) / 7 ).

  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Geometric Mean

    The average of a set of products, the calculation of which is ...
  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. Trimmed Mean

    A method of averaging that removes a small percentage of the ...
Related Articles
  1. Forex Education

    Moving Average Explosions

    Find out how you can profit from this short squeeze strategy.
  2. Bonds & Fixed Income

    Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.
  3. Active Trading

    Modern Portfolio Theory: Why It's Still Hip

    See why investors today still follow this old set of principles that reduce risk and increase returns through diversification.
  4. Fundamental Analysis

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
  5. Active Trading

    Moving Averages

    Discover one of the most reliable indicators in technical analysis and learn how to incorporate it into your trading routine.
  6. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  7. Economics

    Understanding Tragedy of the Commons

    The tragedy of the commons describes an economic problem in which individuals try to reap the greatest benefits from a given resource.
  8. Fundamental Analysis

    Return on Investment (ROI) Vs. Internal Rate of Return (IRR)

    Read about the similarities and differences between an investment's internal rate of return (IRR) and its return on investment (ROI).
  9. Economics

    Current Probability of Donald Trump as President

    Predict the current odds of a Donald Trump presidency, and understand the factors that have kept him on top and the looming challenges he faces.
  10. Investing Basics

    Understanding the Random Walk Theory

    The random walk theory states stock prices are independent of other factors, so their past movements cannot predict their future.
  1. Do plane tickets get cheaper closer to the date of departure?

    The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >>
  2. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. What are some of the more common types of regressions investors can use?

    The most common types of regression an investor can use are linear regressions and multiple linear regressions. Regressions ... Read Full Answer >>
  5. What types of assets lower portfolio variance?

    Assets that have a negative correlation with each other reduce portfolio variance. Variance is one measure of the volatility ... Read Full Answer >>
  6. When is it better to use systematic over simple random sampling?

    Under simple random sampling, a sample of items is chosen randomly from a population, and each item has an equal probability ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center