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Statistics provide the means to analyze data and then summarize it into a numerical form.

Statistical analysis involves collecting data and analyzing it. If a data set is based on a sample of a larger population, an analyst can make inferences back onto that population based on the sample’s statistical results.

For example, investors base their decisions within the context of an economic climate, and they use statistics to measure that climate. One statistic they consider is the consumer price index, or CPI. The CPI takes a basket of goods and compares its average cost to the cost of the same basket of goods from a year prior. The basket can contain food, clothing, transportation or any product or service an economy consumes. The CPI is commonly used to measure changes in the cost of living.

Investors can use statistics for many other purposes, such as comparing the performance records of investment managers, or forecasting a portfolio’s future returns. Combining negatively correlated stocks can help investors diversify and reduce risk. And to find negatively correlated stocks, investors can use regression analysis, which is a statistical measure that attempts to predict the effect of one variable on another.

For example, two technology stocks may be negatively correlated. When one company unveils a popular new gadget, its stock climbs while its competitor’s stock falls. Investors can apply that information to diversify their portfolios.

Other statistical measures investors may use include kurtosis, skewness, and analysis of variance.

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