Next video:
Loading the player...

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.

Related Articles
  1. Investing

    What is Descriptive Statistics?

    Descriptive statistics is the term applied to meaningful data analysis.
  2. Insights

    Can Investors Trust Official Statistics?

    The official statistics in some countries need to be taken with a grain of salt. Find out why you should be skeptical.
  3. Financial Advisor

    4 Reasons Why Market Correlation Matters

    Learn about how correlation can be used to measure how broader markets move in relation to each other. See how correlation is used to manage risk.
  4. Investing


    In the world of finance, correlation is a statistical measure of how two securities move in relation to each other.
  5. Investing

    Explaining Standard Error

    Standard error is a statistical term that measures the accuracy with which a sample represents a population.
  6. Investing


    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  7. Insights

    Understanding Regression

    Regression is a statistical analysis that attempts to predict the effect of one or more variables on another variable.
  8. Investing

    Is the Stock Correlation Strategy Effective?

    The synchronized movement among stocks and markets in recent years is challenging diversification.
  9. Investing

    Understanding the Oil & Gas Price Correlation

    Learn how the correlation between the commodity prices for natural gas and oil changed from 2004 to 2015 due to increased natural gas production.
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center