How to Calculate Arithmetic Average: The Very Basics

Arithmetic average basics

Arithmetic average, or arithmetic mean, or just mean, is the very basic statistical measure. It provides quick and easy information about general level of values in a data set – it is one of the measures of central tendency.

Why to calculate and use mean

When you have a set of data, it is sometimes difficult to tell what the values are in general (you can’t see the forest for the trees). For example, you have 10 stocks. Their annual returns in the last year were: 11%, -5%, 17%, 1%, -9%, 21%, 4%, -6%, 7%, and -1%.

The information provided in this form will tell you the details, but you will have to think for a while to get an idea regarding the annual return of this group of stocks as a whole. When the arithmetic average is provided in addition to this information, it can save you the thinking. The mean (arithmetic average) return of our basket of 10 stocks in the last year was 4%. This information is already quite clear and easy to work with.

Arithmetic average calculation

The calculation of arithmetic average is straightforward. You sum up all the values and then divide the sum by the number of values. Let’s use the example above to illustrate the calculation of mean:

Calculating arithmetic average in Excel

Though the calculation is very simple, it can be boring and prone to errors when you work with large sets of data (imagine calculating the average return of the 500 stocks in S&P500 like this). Computers calculate arithmetic average for us. In Microsoft Excel, you can use the function AVERAGE. The parameter is the area of the cells where you have the individual values.

Disadvantages of arithmetic average and using other averages

Though arithmetic average is easy and elegant for the first quick information about a data set, it has weaknesses and sometimes it is better to use one of the other measures of central tendency, like geometric average, weighted average, median, or mode.

Furthermore, knowing the general level of values is often not enough. You may also want to measure volatility or dispersion (using standard deviation or variance) and many other characteristics.

You can easily calculate arithmetic average, median, variance, standard deviation and other measures using the Descriptive Statistics Excel Calculator.

Related pages

finance msftstandard deviation of a sample calculatormacd trading strategiesgamma options tradingvix future pricesnasdaq historical prices yahooblack scholes model derivationmean deviation calculatorpercentile calculator mean sdvix call optionsput and calls for dummiesmean average deviation formulaultra short vix etftheta calculatormean variance and standard deviation calculatorannualized volatility formulawilder rsicost accounting sumshow to calculate stdev in excelsample mean calculatorrsi calculation excelestimated standard deviation calculatorannual rate of return calculator excelyahoo msftbearish positionrho financereverting meansyahoo finance symbolsbull call spread graphstock option strike pricecalculation of skewness and kurtosisterm structure of implied volatilitystandard deviation formula for grouped dataexcel calculation formulastatistics median calculatornormal kurtosistrading vixmean and standard deviation calculatordjia calculationarithmetic mean of grouped datacalculate implied interest rate13f filings hedge fundsaverage inventory cost methodcurrent vixindexation calculationvolatile meaning in financenatural log in excelrho optionshow to calculate var in exceldefinition of sharpe ratiovolatility index definitionfifo and weighted average methodmsft historical pricesweighted average cost of inventory formulahow to calculate percent deviationdisadvantages of weighted average methodrsi emaoption greeks calculatorprofit function calculatoroption greek calculatorexcel formula for square rootstrike price stock optionblack scholes tables&p 500 2x etfltcm trading strategiesstraddle strategy optionsblack scholes calculator exceleuro stoxx 50 wikiintrinsic value formula excelvixyvxv indexcall option intrinsic valuetheory of rational option pricingformula for population mean