Lesson 10 of 11 · All lessons in this module
- Mean, median, mode and outliers
- Quantiles, box plots and their uses
- Range, mean absolute deviation, variance and standard deviation
- Median absolute deviation, semivariance and estimator bias
- Target downside deviation and coefficient of variationVideo lesson
- Returns not prices, data frequency and volatility scaling
- Skewness and kurtosisVideo lesson
- Scatter plots, covariance and correlation
- Limits of correlation analysis
- The four moments, benchmark correlation and spreadsheet functions
- Integrated cases: describing one return series from raw data
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 10 of 11 · 12 min
The four moments, benchmark correlation and spreadsheet functions
Mean, variance, skewness and kurtosis are the first four moments of a distribution; correlation with a benchmark's excess returns shows how closely an asset follows the market; and spreadsheets compute all of these with built-in functions.
In short
- The first four moments: mean (centre), variance (spread), skewness (asymmetry) and kurtosis (tails and peak).
- Skewness and kurtosis are standardized by the standard deviation, so they are free of scale. Many packages report excess kurtosis; check which one you are given.
- Correlating an asset's excess returns with its benchmark's excess returns shows how closely the asset follows the market.
- Spreadsheet functions: AVERAGE, MEDIAN, MODE, TRIMMEAN, QUARTILE/PERCENTILE, VAR.P/VAR.S, STDEV.P/STDEV.S, SKEW, KURT, COVARIANCE.P/S and CORREL. There is no built-in winsorized mean.
- Quantile labels depend on context: in a spreadsheet the 0th percentile is the smallest value, but a first-quartile manager is among the best performers.
Unlock this lesson free for 7 days
Create a free account to get 7 days free: every lesson, video and flashcard, and the question bank. No card needed.