Both correlation and covariance are an indicator of the relationship between two variables. They indicate whether the variables are positively or negatively related. The correlation also indicates the degree to which the two variables are related. It’s a translation of covariance into a unit-less measure that we can understand (-1.0 to 1.0). The correlation of […]
Introduction to Statistics
Type I and Type II Errors
When drawing an inference (from a sample statistic, about a population parameter), there can be two types of errors: Type I and Type II. Type I error, also known as error of the first kind, occurs when the null hypothesis is true, but is rejected. Type II error, also known as the error of the […]
Probability: Permutations and Combinations
This video is a short primer on the concepts of permutations and combinations. Both permutations and combinations count the ways that (r) objects can be taken from a group of (n) objects, but permutations are arrangements (sequence matters), while combinations are selections (order does not matter). For example, how many ways can you seat people […]
Baye’s Theorem
Bayes’ Theorem formula, also known as Bayes’ Law, or Bayes’ Rule, is an intuitive idea. We adjust our perspective (the probability set) given new, relevant information. Formally, Bayes’ Theorem helps us move from an unconditional probability (what are the odds the economy will grow?) to a conditional probability (given new evidence, what are the odds […]
Central Limit Theorem
The Central Limit Theorem is a fundamental theorem of probability and describes the characteristics of the population of the means. According the Central Limit Theorem, the sample mean will be normally distributed regardless of the population distribution. Regardless of the distribution of parent. The Central Limit Theorem tells us what happens when we have the […]
What is a Random Variable?
This video introduces you to the concept of random variables. It is one of the most important concepts in Finance. For example this can be viewed as the outcome of throwing a die where the process is fixed by the outcome is not. Random variables describe key things like asset returns. We then use distribution […]