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. Replacement Cost

    The cost to replace the assets of a company or a property of ...
  3. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  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. Economics

    Calculating the Arithmetic Mean

    The arithmetic mean is the average of a sum of numbers.
  2. Fundamental Analysis

    How To Calculate Your Investment Return

    How much are your investments actually returning? Find out why the method of calculation matters.
  3. Mutual Funds & ETFs

    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.
  4. 401 (K) Spring Clean Up

    Spring cleaning isn't only for homes. Your 401 (K) could use an overhaul to ensure you aren't overpaying.
  5. Active Trading Fundamentals

    Simple Moving Averages Make Trends Stand Out

    The moving average is easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool.
  6. Trading Strategies

    Technical Analysis: Moving Averages

    By Cory Janssen, Chad Langager and Casey MurphyMost chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. ...
  7. Home & Auto

    Understanding Contents Coverage

    This type of insurance deals with personal belongings. Find out what it covers, and if you need to cover more expensive items.
  8. Budgeting

    Fix Or Replace: Thinking Ahead On Home Repairs

    When something breaks, how do you decide whether to fix it or throw it away? We provide some tips.
  9. Home & Auto

    Best Types of Remodels For A Smart Sale Strategy

    Consider these improvements to your home if you want to increase its resale price.
  10. Investing News

    Economists Say Computers Will Erase 7M Jobs by 2020

    At this year's Davos conference, the results of a survey indicate that in just four years technology could effectively destroy more than 7.1 million jobs.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What are the disadvantages of using the sinking fund method to depreciate an asset?

    Learn what the sinking fund method of depreciation is, why a company might choose to use it and what the disadvantages are ... Read Answer >>
  4. What is the difference between a simple moving average and an exponential moving ...

    The only difference between these two types of moving average is the sensitivity each one shows to changes in the data used ... Read Answer >>
  5. What is the difference between standard deviation and mean?

    Understand the basics of calculating and interpreting mean and standard deviation and how these mathematical fundamentals ... Read Answer >>
  6. How much renters insurance do you need?

    Learn how much renters insurance you need to replace your belongings and how to calculate exactly how much is necessary to ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center