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What is a 'Heatmap'

A heatmap is a two-dimensional visual representation of data using colors, when the colors all represent different values. A heatmap can be used with all sorts of data, from the real estate market representing the number of foreclosures to the spreads of credit default swaps to webpage analysis to represent number of hits a website receives.

BREAKING DOWN 'Heatmap'

Heatmaps were used as early as the 19th century in statistical analysis and grew as a useful tool for almost every industry and field, including medicine, marketing, engineering, and research. As a practical example of how heatmaps can be helpful, they became especially popular during the recession that began in 2008. Many people used heatmaps to quickly see the foreclosure rates in various states and compare them to heatmaps from previous months to see if foreclosures were rising, falling or staying the same.

Heatmaps are helpful because they can provide an efficient and comprehensive overview of a topic at-a-glance. Unlike charts or tables, which have to be interpreted or studied to be understood, heatmaps are direct data visualization tools that are more self-explanatory and easy-to-read. Heatmaps can also be more user-friendly for consumers, especially those not accustomed to reading large amounts of data because they are more visually accessible than traditional data formats.

However, heatmaps can also be misleading, because they often involve large amounts of data and thus, may not include all of the necessary information needed to make an accurate assumption about the trend portrayed. Heatmaps can show that certain situations happened, but not provide insight into why the situation happened, what factors were involved in the situation happening or what the forecast for the future will be. Heatmaps are often made before all of the data is released in order to provide some kind of preliminary analytics, so it does have to be read with that in mind.

Example of a Heatmap

Heatmaps can be employed in a variety of situations and industries. For example, a heatmap of foreclosures data could show parts of the U.S. experiencing high rates of foreclosure in a dark color and states with low foreclosure rates in lighter colors to real estate professionals looking to understand more about the market and identify market trends. A color-gradient legend typically accompanies a heatmap to specify the data and help the map reader understand the data. Heatmaps are also widely used in webpage industries to show where users are clicking.

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