Variance (of a discrete random variable)

A measure of spread for a distribution of a random variable that determines the degree
to which the values of a random variable differ from the expected value, a measurement
of the spread between numbers in a data set.
The variance of random variable X is often written as Var(X) or σ2 or σ2x.
For a discrete random variable the variance is calculated by summing the product of the
square of the difference between the value of the random variable and the expected
value, and the associated probability of the value of the random variable, taken over all
of the values of the random variable.
In symbols, Var(X) = (x - µ)2 P(X = x)
An equivalent formula is, Var(X) = E(X2) – [E(X)]2
The square root of the variance is equal to the standard deviation.
Example
Random variable X has the following probability function:
x 0 1 2 3
P(X = x) 0.1 0.2 0.4 0.3

Using Var(X) = (x - µ)2 P(X = x)

µ = 0 x 0.1 + 1 x 0.2 + 2 x 0.4 + 3 x 0.3
= 1.9
Var(X) = (0 – 1.9)2x 0.1 + (1 – 1.9)2x 0.2 + (2 – 1.9)2x 0.4 + (3 – 1.9)2x 0.3
= 0.89

Using Var(X) = E(X2) – [E(X)]2

E(X) = 0 x 0.1 + 1 x 0.2 + 2 x 0.4 + 3 x 0.3
= 1.9
E(X2) = 02 × 0.1 + 12 × 0.2 + 22 × 0.4 + 32 × 0.3
= 4.5
Var(X) = 4.5 – 1.92
= 0.89

Variance is used in statistics for probability distribution. Since variance

measures the variability (volatility) from an average or mean and volatility is a
measure of risk, the variance statistic can help determine the risk an investor
might assume when purchasing a specific security. A variance value of zero
indicates that all values within a set of numbers are identical; all variances that
are non-zero will be positive numbers. A large variance indicates that
numbers in the set are far from the mean and each other, while a small
variance indicates the opposite.
 Examples
1) Senior High Statistics test scores on Random Variables are described by the following
probability distribution.

Score 40 50 60 70 80

P(Score) .1 .2 .3 .3 .1

A) Determine the mean and variance of the scores.

B) Mrs. Burnett, in yet another act of benevolence, decides to scale the scores so her students
will not be denied admission to the college of their choice. She decides the actual grades will
become: Grade = 1.5 * Score – 20 .
Determine the mean and variance of the grades.

Which Score(s), if any, will not increase