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 ).

RELATED TERMS
  1. Trimmed Mean

    A method of averaging that removes a small percentage of the ...
  2. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  3. Mean

    The simple mathematical average of a set of two or more numbers. ...
  4. Replacement Rate

    The percentage of a worker's pre-retirement income that is paid ...
  5. Actual Cash Value

    The amount equal to the replacement cost minus depreciation of ...
  6. Arithmetic Index

    An index of securities that uses an arithmetic sum to determine ...
Related Articles
  1. Trading

    Calculating the Arithmetic Mean

    The arithmetic mean is the average of a sum of numbers.
  2. Managing Wealth

    Breaking Down The Geometric Mean

    Understanding portfolio performance, whether for a self-managed, discretionary portfolio or a non-discretionary portfolio, is vital to determining whether the portfolio strategy is working or ...
  3. Investing

    Explaining Replacement Cost

    The replacement cost is the cost you’d have to pay to replace an asset with a similar asset at the present time and value.
  4. Markets

    The Most Accurate Way To Gauge Returns: The Compound Annual Growth Rate

    The compound annual growth rate, or CAGR for short, represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios and anything that ...
  5. Investing

    How To Calculate Your Investment Return

    How much are your investments actually returning? Find out why the method of calculation matters.
  6. Markets

    Will Your Job Get Eaten by Automation?

    With the rapid growth of technology, it has been widely contested whether automation will start to replace jobs.
  7. ETFs & Mutual Funds

    Fidelity Income Replacement Funds Overview

    Learn about the Fidelity Income Replacement Funds, with a summary of the methodology behind the strategy and details about a few of the funds.
  8. Managing Wealth

    Calculating The Means

    Learn more about the different ways you can calculate your portfolio's average return.
  9. Markets

    How To Make Money Using Tobin's Q Ratio

    Although it seems simple, Tobin's Q Ratio is more complex than it appears. We explore some of its main strengths and weaknesses.
  10. Investing

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
RELATED FAQS
  1. Can two numbers have the same arithmetic and geometric means?

    Learn about the often complicated relationship between the geometric mean and arithmetic mean for a set of numbers, and which ... Read Answer >>
  2. What is the difference between arithmetic and geometric averages?

    An arithmetic average is the sum of a series of numbers divided by the count of that series of numbers. If you were asked ... Read Answer >>
  3. The ABC Global mutual fund exhibited the following rates of return over the last ...

    The correct answer is: a) Arithmetic Mean = (15 + -7 + 6.5 + -11.3 + 32.7)/5 = 7.18% Geometric Mean =[(1.15 x 0.93 x 1.065 ... Read Answer >>
  4. How can investors benefit by understanding geometric means?

    Discover why investors should know the difference between geometric and arithmetic means, and why the geometric mean is more ... Read Answer >>
  5. How do you calculate the geometric mean to assess portfolio performance?

    Learn how to calculate the geometric mean. Understand when the geometric mean should be used and how it differs from the ... Read Answer >>
  6. I keep hearing about the 50-day, 100-day and 200-day moving averages. What do they ...

    Whether you are using the 50-day, 100-day or 200-day moving average, the method of calculation and the manner in which the ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center