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


merits and demerits of mean median modemacd emawhat is the formula for sample variancedefinition of sharpe ratio13f secoex options chainwacc formula with preferred stockblack scholes pricing modelhow to calculate implied volatilitywhat is skewness and kurtosiscalculating annualised returnpayoff of call optionhull options futuresdistribution kurtosisweighted standard deviation excelstandard deviation calculation excelciti reverse splithow is the dow jones industrial average calculatedjohn hull futures options and other derivativessell straddlewhat is the formula for variance in exceldefine rsimacd excelkurtosis values interpretationetn etfdow jones industrial average calculationstandard deviation calcxl formulasrho optionapple stock chart historyrsi stock meaningdef varianceblack scholes pricing model calculatorbloomberg s&p futuresblack scholes price calculatorinverse vix etf 2xformula for weighted average cost of capitalvix inverse etfhow to calculate 95th percentile in excelciti stock splitstraddle tradebull call spread graphwhat is the median function in exceloption strategy calculatorcontinuous dividend yield formulastandard deviation calculator percentilesec 13f listmicrosoft excel weighted averagearithmetic percentagesiron butterfly optionmeasure of kurtosisproshares ultra vix short-term futures etfexcel function stdevvix real time quoteyahoo finance indexs&p etf listbarclays ipathmsft historical pricespercent standard deviation calculatorempirical formula calculator statisticsblack schole equationblack sholehow to subtract standard deviationsaverage cost method ending inventoryvix quotesample covariance excel2 line macdindicative pricing definitionrules for multiplying square rootsatr indicator explainedarithmetic mean of grouped datanormdist functioncalculate delta of call optiondaily closing stock pricesatr formulapopulation variance calculatorarithmetic sum calculatorcalculate population meankurtosis of normal distributioncomputational formula for sample variancearithmetic average calculator