What is R-Squared? R-Squared (R² or the coefficient of determination) is a statistical measure in a regression model that determines the proportion of variance in the dependent variable that can be explained by the independent variable. In other words, R-squared shows how well the data fit the regression model (the goodness of fit). Figure 1….
What does Pro Forma Mean? Pro forma is Latin for “as a matter of” or “for the sake of form.” It is used primarily in reference to the presentation of information in a formal way, assuming or forecasting pieces of information that may be unavailable. In most cases, pro forma documentation is used to present…
What is Time Period Bias? Time period bias is a sampling error caused by selecting observations that only cover a certain time period (i.e., a certain set of circumstances or factors). Time period bias may lead to inaccurate results since the conclusions obtained from using a sample suffering from the bias may be uniquely specific…
What is Survivorship Bias? Survivorship bias is a type of sample selection bias that occurs when a data set only considers “surviving” or existing observations and fails to consider observations that already ceased to exist. In finance, an example of survivorship bias is when studies on mutual fund returns only use databases that contain data…
What is Consignment? Before understanding the difference between consignor vs. consignee, it’s important to understand what consignment is. Consignment is the process by which a person gives over something to the care of another party, retaining full ownership until the property is sold. It is often done during auctions, shipping, transferring goods, or any time…
What is a Random Variable? A random variable (stochastic variable) is a type of variable in statistics whose possible values depend on the outcomes of a certain random phenomenon. Since a random variable can take on different values, it is commonly labeled with a letter (e.g., variable “X”). Each variable possesses a specific probability distribution function…
What is the Central Limit Theorem (CLT)? The Central Limit Theorem (CLT) is a statistical concept that states that the sample mean distribution of a random variable will assume a near-normal or normal distribution if the sample size is large enough. In simple terms, the theorem states that the sampling distribution of the mean approaches…
What is Statistics? Statistics is a term derived from the Latin word “status,” which means a group of figures used to represent information about a human interest. It refers to the technique developed to collect, review, analyze, and draw conclusions from quantified data. The data obtained is then used in the decision-making process. Financial analysts…
What is Kurtosis? Kurtosis is a statistical measure that defines how heavily the tails of a distribution differ from the tails of a normal distribution. In other words, kurtosis identifies whether the tails of a given distribution contain extreme values. Along with skewness, kurtosis is an important descriptive statistic of data distribution. However, the two…
