Question

Average 0.02% 0.42% Median -0.37% 0.98%
A company’s average return is much higher than its median return, explain what can be inferred and interpret the difference in median and average returns between A and B?

Answer 1

Average Return : Average return refers to the mean return that is calculated by total sum of observation divided by number of observations.

Median : Median refers to the middle value of the observations if we arrange them in ascending or descending order.

Explanation to A: In this case, average is 0.02% while the median is -0.37%, it states that the value of upper observations is much higer than that of median. In this scenario, the upper observations value increase the average.

For Example: Assume a observation of 100,75,10,0,-20

In this case, the median is 10, which is the middle value of the observation if arrange in descending order and if we look at average mean of it, then it would be

= [100+75+10+0+(-20)] /5

=33

The average in this case is 33, while median is 10, it which states the condition where the lower observation is pulling the average down more than of median. In this case, lower value observations pulls down the average.

Explanation to B: In this case, average is 0.42% while the median is 0.98%, it states that the value of lower observations is much higher than upper value of observations if we arrange them in descending order. the upper observation pulls down the average.

For Example: Assume a observation of 50,40,30,0,-20

In this case, the median is 30, which is the middle value of the observation if arrange in descending order and if we look at average mean of it, then it would be

= [50+40+30+0+(-20)] /5

= 20

The average is much lower than median value which states to the condition where the lower observation is pulling the average down more than of median.