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

trial and error excelwhat is kurtosis in statisticscboe volatilityn d1 black scholestheta formulacall option payoff graphmacro hedge fundsoption black scholes calculatorstock excel spreadsheetkurtosis measuredef standard deviationstock calculation in excelaverage true range formulayahoo futures indicesdescriptive stats in excelportfolio sharpe ratiotrading the macdgreeks financevertical call spread calculatorvix term structurecomputational formula for sample variancenegative sharpe ratio interpretationcalculate historical volatilitycalculator for negative numberssharpe ratio for stocksexcel cash flow diagramformula for skewstandard deviations calculatorspx settlementtvix optionsskewness meansblack & scholes modelkurtosis graphsample variance formula proofcalculate geometric mean in exceloptions futures and other derivatives solutions manualaverage true range formuladelta gamma thetaexcel stdev.sinferential statistics formulasblack scholes exceldays calculator formula excelexcel formulas for stock tradingblack scholes with dividend calculatorrsi calculation excelstock indexingcalculator for variancecalculating volatility of stockforex volatility calculatoroption payoff diagramintrinsic value of stock formulabreak even point graph excelwhat are some components of waccnotepad backgroundhistorical var calculationhow to invest in vix volatility indexcompute average in excelcalculating stock volatilitystandard deviation calculation excelema rsiblack sholes option pricing modelmodified black scholespro shares ultravalue of a call option formulaformula for mean variance and standard deviationvar calculation excelyen etfrelative average deviation calculatoryahoo stock futuresnotepad _black scholes methodubs e-tracsvix options expirationleptokurtic kurtosis3x leveraged etf liststock excel spreadsheetproshares short vix short-term futures etfspx options settlement