Mean, median and mode

Averages are used all the time in finance, usually to justify performance (‘above average’). However, as an investor, you should realise there are several ways to calculate an average.

The three most common are the mean, median and mode. Let’s say you have five FTSE 100 readings on consecutive days. They are 4,800, 4,900, 4,700, 4,800 and 5,100. The mean is the sum of the five readings divided by the number of readings, so (4,800+4,900+4,700+4,800+5,100) divided by five. That’s 4,860. One of the problems is that extreme outliers can give a misleadingly high or low figure.

The median is the reading in the middle when all the data are ranked in ascending order. So looking at our figures, that’s 4,800. You can use the median to test the mean – if the two are close together, the mean can be taken as representative and not unduly distorted by outliers.

Finally, there’s the mode – the most common reading. In this example, that’s also 4,800.

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12