Loading the player...

What is 'Statistically Significant'

Statistically significant is the likelihood that a relationship between two or more variables is caused by something other than chance. Statistical hypothesis testing is used to determine whether the result of a data set is statistically significant. This test provides a p-value, representing the probability that random chance could explain the result; in general, a p-value of 5% or lower is considered to be statistically significant.

BREAKING DOWN 'Statistically Significant'

Statistical significance is used to accept or reject the null hypothesis, which hypothesizes that there is no relationship between measured variables.  A data set is statistically significant when the set is large enough to accurately represent the phenomenon or population sample being studied. A data set is typically deemed to be statistically significant if the probability of the phenomenon being random is less than 1/20, resulting in a p-value of 5%. When the test result exceeds the p-value, the null hypothesis is accepted.  When the test result is less than the p-value, the null hypothesis is rejected.

Statistically Significant Data in Theory

Suppose Joe Sample works for a company that manufactures running shoes. For optimal production, he considers how many shoes should be made in each sex's size. Joe does not rely on anecdotal evidence that males have bigger sizes relative to females; he opts to use statistical study that shows the correlation between sex and foot size to make accurate forecasts. 

If the study's p-value was 2% (<5%), it would have a statistically significant result. The p-value indicates there is only a 2% chance that the connection between foot size and gender was the result of chance.  He could then reasonably use the study's data to prepare his company's production plans. On the other hand, if the p-value was 6% (>5%), it would not be reasonable to use the study as a basis for his production plans. So, if the study with the 2% p-value said that most men have shoe sizes between 8 and 12 and women have shoe sizes between 4 and 8, he could develop plans to produce most of the shoes in those sizes.

Statistically Significant Data in Practice

Often, the idea of statistical significance is used for new pharmaceutical drug trials, to test vaccines, and in the study of pathology. This is important for two reasons: The first is that the drug is tested for effectiveness, and the second is that it tells investors how successful the company is at releasing new products.

For example, Novo Nordisk, the pharmaceutical leader in diabetes medication, reported that there was a statistically significant reduction in type 1 diabetes when it tested its new insulin. The test consisted of 26 weeks of randomized therapy among diabetes patients; the result was a reduction in type 1 diabetes and a p-value of less than 5%, meaning that the reduction in diabetes was not due to random chance.

RELATED TERMS
  1. P-Value

    The level of marginal significance within a statistical hypothesis ...
  2. Hypothesis Testing

    A process by which an analyst tests a statistical hypothesis. ...
  3. Alpha Risk

    Alpha risk is the risk in a statistical test of rejecting a null ...
  4. Type II Error

    A type II error is a statistical term used within the context ...
  5. Type I Error

    A type I error is a kind of error that occurs when a null hypothesis ...
  6. P-Test

    A P-test is a statistical method used to assess one or more hypotheses ...
Related Articles
  1. Investing

    Investing For The Global Diabetes Epidemic

    Sadly, diabetes is quickly becoming a global epidemic. Within these grim statistics, investors can find opportunities with the companies that are fighting this epidemic.
  2. Investing

    Investing For The Diabetes Epidemic

    Sadly, diabetes is quickly becoming a global epidemic. Nearly 300 million people suffer from the disease worldwide.
  3. Investing

    Roche Restructuring Shows Trouble in US Diabetes Biz

    Roche announced a reorganization and job cuts as the U.S. diabetes market continues to struggle.
  4. Investing

    FDA Approves Novo Nordisk Diabetes Drug (NVO)

    Xultophy enters a highly competitive U.S. diabetes drug market, with commercial launch planned for the first half of 2017.
  5. Investing

    Novo Nordisk Q4 Net Below Street Expectations

    Though Novo Nordisk expects to enter sectors beyond diabetes, the results and future guidance failed to meet market expectations
  6. Investing

    Lexicon Diabetes Drug Shows Phase 2 Promise (LXRX)

    Lexicon Pharmaceuticals reported promising results from a Phase 2 trial of its type 1 diabetes drug, sotagliflozin.
  7. Investing

    Nike Releases Self-Lacing Shoes (NKE)

    Nike went back to the future to release self-lacing shoes yesterday at an event in New York.
  8. Investing

    Is This Diabetes Stock a Better Bet Than MannKind? (MNKD, NVO)

    MannKind's (NASDAQ: MNKD) inhaled insulin, Afrezza, is incredibly intriguing, but Novo Nordisk's (NYSE: NVO) long-standing dominance in diabetes treatment and its research to develop insulin ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    Learn what a t-test is and discover the five standard assumptions made regarding the validity of sampling and data used in ... Read Answer >>
  2. What are the advantages of using a simple random sample to study a larger population?

    Learn how simple random sampling works and what advantages it offers over other sampling methods when selecting a research ... Read Answer >>
  3. What percentage of the population do you need in a representative sample?

    Learn about representative samples and how they are used in conjunction with other strategies to create useful data with ... Read Answer >>
  4. Can your insurance company drug test you?

    Learn why insurance companies conduct drug tests and how a lifestyle free of drugs can save you big money on health and life ... Read Answer >>
  5. How does the Bureau of Labor Statistics determine the Consumer Price Index (CPI)?

    Changes in the average price level of more than 200 goods and services across the U.S. economy are used to determine the ... Read Answer >>
  6. Has the Efficient Market Hypothesis been proven correct or incorrect?

    Explore the efficient market hypothesis and understand the extent to which this theory and its conclusions are correct or ... Read Answer >>
Trading Center