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Mean-variance analysis |
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Definition of Mean-variance analysisMean-variance analysisEvaluation of risky prospects based on the expected value and variance of possible outcomes.
Related Terms:Arithmetic average (mean) rate of returnArithmetic mean return. Arithmetic mean returnAn average of the subperiod returns, calculated by summing the subperiod returns BARRA's performance analysis (PERFAN)A method developed by BARRA, a consulting firm in Break-even analysisAn analysis of the level of sales at which a project would make zero profit. Cluster analysisA statistical technique that identifies clusters of stocks whose returns are highly correlated Common-base-year analysisThe representing of accounting information over multiple years as percentages Comparative credit analysisA method of analysis in which a firm is compared to others that have a desired CovarianceA statistical measure of the degree to which random variables move together. Credit analysisThe process of analyzing information on companies and bond issues in order to estimate the Discriminant analysisA statistical process that links the probability of default to a specified set of financial ratios. Factor analysisA statistical procedure that seeks to explain a certain phenomenon, such as the return on a Fundamental analysisSecurity analysis that seeks to detect misvalued securities by an analysis of the firm's Geometric mean returnAlso called the time weighted rate of return, a measure of the compounded rate of Horizon analysisAn analysis of returns using total return to assess performance over some investment horizon. Horizontal analysisThe process of dividing each expense item of a given year by the same expense item in MeanThe expected value of a random variable. Mean of the sampleThe arithmetic average; that is, the sum of the observations divided by the number of Mean-variance criterionThe selection of portfolios based on the means and variances of their returns. The Mean-variance efficient portfolioRelated: Markowitz efficient portfolio Minimum-variance frontierGraph of the lowest possible portfolio variance that is attainable for a given Minimum-variance portfolioThe portfolio of risky assets with lowest variance. Multiple-discriminant analysis (MDA)Statistical technique for distinguishing between two groups on the Performance attribution analysisThe decomposition of a money manager's performance results to explain Portfolio varianceWeighted sum of the covariance and variances of the assets in a portfolio. Pro forma capital structure analysisA method of analyzing the impact of alternative capital structure Regression analysisA statistical technique that can be used to estimate relationships between variables. Regression toward the meanThe tendency for subsequent observations of a random variable to be closer to its mean. Scenario analysisThe use of horizon analysis to project bond total returns under different reinvestment rates Sensitivity analysisanalysis of the effect on a project's profitability due to changes in sales, cost, and so on. Serial covarianceThe covariance between a variable and the lagged value of the variable; the same as Technical analysisSecurity analysis that seeks to detect and interpret patterns in past security prices. VarianceA measure of dispersion of a set of data points around their mean value. The mathematical Variance minimization approach to trackingAn approach to bond indexing that uses historical data to Variance ruleSpecifies the permitted minimum or maximum quantity of securities that can be delivered to Vertical analysisThe process of dividing each expense item in the income statement of a given year by net VERTICAL ANALYSISA financial analysis technique that relates key amounts on the income statement and balance sheet to a 100 percent or base figure for the present and previous year. Costâ€“volumeâ€“profit analysis (CVP)A method for understanding the relationship between revenue, cost and sales volume. Ratio analysisA method of analysing financial reports to interpret trends and make comparisons by using ratios â€“ two numbers, with one generally expressed as a percentage of the other. Sensitivity analysisAn approach to understanding how changes in one variable of costâ€“volumeâ€“profit analysis are affected by changes in the other variables. Variance analysisA method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved. Ratio analysisA method of relating numbers from the various financial statements to one another in order to get meaningful information for comparison. capital investment analysisRefers to various techniques and procedures Ratio AnalysisThe process of using financial ratios, calculated from key accounts VarianceThe weighted average of the squared deviations from the activity analysisthe process of detailing the various repetitive actions that are performed in making a product or budget variancethe difference between total actual overhead controllable variancethe budget variance of the two variance approach to analyzing overhead variances correlation analysisan analytical technique that uses statistical cost-benefit analysis the analytical process of comparing therelative costs and benefits that result from a specific course cost driver analysisthe process of investigating, quantifying, fixed overhead spending variancethe difference between the total actual fixed overhead and budgeted fixed overhead; fixed overhead volume variancesee volume variance incremental analysisa process of evaluating changes that labor efficiency variancethe number of hours actually worked minus the standard hours allowed for the production labor mix variance(actual mix X actual hours X standard rate) - (standard mix X actual hours X standard rate); labor rate variancethe actual rate (or actual weighted average rate) paid to labor for the period minus the standard rate multiplied by all hours actually worked during the period; labor yield variance(standard mix X actual hours X standard rate) - (standard mix X standard hours X standard rate); least squares regression analysisa statistical technique that investigates the association between dependent and independent variables; it determines the line of "best fit" for a set of observations by minimizing the sum of the squares material price variancetotal actual cost of material purchased material quantity variance(actual quantity X standard price) - (standard quantity allowed standard price); material mix variance(actual mix X actual quantity X standard price) - (standard mix X actual quantity X standardprice); material yield variance(standard mix X actual quantity X standard price) - (standard mix X standard quantity X standard price); noncontrollable variancethe fixed overhead volume variance; overhead efficiency variancethe difference between total budgeted overhead at actual hours and total budgeted overhead spending variancethe difference between total actual overhead and total budgeted overhead at actual Pareto analysisa method of ranking the causes of variation sensitivity analysisa process of determining the amount of change that must occur in a variable before a different decision would be made total overhead variancethe difference between total actual overhead and total applied overhead; it is the amount of underapplied or overapplied overhead total variancethe difference between total actual cost incurred variable overhead efficiency variancethe difference between budgeted variable overhead based on actual input activity and variable overhead applied to production variable overhead spending variancethe difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity variancea difference between an actual and a standard or variance analysisthe process of categorizing the nature (favorable or unfavorable) of the differences between standard and actual costs and determining the reasons for those differences volume variancea fixed overhead variance that represents CovarianceA measure of the degree to which returns on two assets move in Mean a. A number that typifies a set of numbers, such as a geometric mean Regression analysisStatistical analysis techniques that quantify the VarianceThe dispersion of a variable. The square of the standard deviation. Direct materials mix varianceThe variance between the budgeted and actual mixes of Labor efficiency varianceThe difference between the amount of time that was budgeted Labor rate varianceThe difference between the actual and standard direct labor rates Materials price varianceThe difference between the actual and budgeted cost to Materials quantity varianceThe difference between the actual and budgeted quantities Pareto analysisThe 80:20 ratio that states that 20% of the variables included in an Production yield varianceThe difference between the actual and budgeted proportions Selling price varianceThe difference between the actual and budgeted selling price for break-even analysisanalysis of the level of sales at which the company breaks even. credit analysisProcedure to determine the likelihood a customer will pay its bills. scenario analysisProject analysis given a particular combination of assumptions. sensitivity analysisanalysis of the effects of changes in sales, costs, and so on, on project profitability. simulation analysisEstimation of the probabilities of different possible outcomes, e.g., from an investment project. varianceAverage value of squared deviations from mean. A measure of volatility. Cost-Benefit AnalysisThe calculation and comparison of the costs and benefits of a policy or project. Failure analysisThe examination of failure incidents to identify components Break-Even AnalysisAn analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero). Financial Trend AnalysisProcess of analyzing financial statements of a company for any continuing relationship.
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