Sum of Squares
Candlefocus EditorHigher numbers for the sum of squares indicate a larger spread in the data, or higher variability. This higher sum of squares suggests that the individual data points in the set are further away from the mean. Similarly, a lower sum of squares indicates a lower spread of data, which suggests that the individual data points in the set are closer to the mean.
The sum of squares can be broken down into three distinct categories. The first, and most commonly used, is the total sum of squares. This is used to measure the total variation in a data set. The second is the residual sum of squares, which measures the variation that cannot be explained by the predicted values. The third is the regressive sum of squares, which is the variation explained by the regression equation. All three types of sum of squares can be used to determine which of the variables in a dataset have a direct effect on a dependent variable.
Importantly, being able to calculate the sums of squares can help investors make better decisions about their investments. Investors can use this statistic to determine which investments carry the most variability and represent the greatest risk. Knowing the sums of squares of a portfolio can provide insight into the outliers and their effects on the remainder of the portfolio.
In summary, the sum of squares is a statistic which determines the spread of data points in a set away from the mean. Being able to calculate the sum of squares can provide insight into dispersion of data, as well as which variables are impacting the dependent variable. Investors can also use this statistic to measure the risk associated with a particular portfolio. Overall, the sum of squares is a powerful tool for investors when making decisions about their investments.