The simplest and most popular way to measure a mean or average is the arithmetic mean. It simply entails adding up a collection of numbers, then dividing that total by the total number of numbers in the series. Take the digits 34, 44, 56, and 78 as an illustration. It comes to 212. 53 is the arithmetic mean, or 212 divided by 4.
Other methods are also employed, such the geometric mean and harmonic mean, which are relevant in some financial and investment contexts. The trimmed mean, which is used to compute economic data like the consumer price index (CPI) and personal consumption expenditures, is another illustration (PCE).
The mathematical mean continues to be used in finance. For instance, arithmetic means are frequently used to estimate mean wages. Let’s say you’re interested in learning what the 16 analysts who cover a particular stock predict for earnings on average. To find the arithmetic mean, simply add up all of the estimations and divide by 16.
The same holds true if you’re attempting to figure out a stock’s average closing price for a specific month. Let’s say that a month has 23 trading days. To find the arithmetic mean, simply add up all the prices, divide by 23, and you have your answer.