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Up4
Is there a difference between variance vs variation when calculating returns? Or are they interchangeable terms?
I know that the term ‘variance’ is the one used in formula, but the lecture videos I have throw around the term ‘variation’ a lot and I’m not sure if they mean variance or some other concept.
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Up0
Isn’t variance a measure of variation?
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Up0
Variance is a specific, defined term: measure of distribution spread, i.e. how varied a distribution is. This is calculated by measuring the deviation (difference) of each data point from the mean, squaring it, and calculating its average:
population variance =
‘Variation‘ is not a specific, defined term, but rather just saying that ‘its datapoints are distributed’.
Variance is in a way a measure of ‘variation’ so a lecturer could end up using this interchangeably when explaining concepts, but it’s unlikely you’ll find a question asking you to calculate the ‘variation’ of a distribution.
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