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Frequency Distributions

Posted on February 15, 2021February 15, 2021 by financialeducation

Frequency distributions display data in a table. They are constructed by counting the observations of a variable belonging to a distinct group or having a given value.

To construct a frequency distribution of a categorical variable, you first count the number of observations of each unique value of the variable. Then you create a table listing each unique value and the corresponding count. Finally, you sort the records in either ascending or descending order.

The table below is a frequency distribution of the companies in the Dow Jones Industrial Average by sector. The first column describes the sector, the second is the absolute frequency (the number of companies in that sector), and the last column is the relative frequency (the percentage of the total companies that are in that sector). It is easy to see that information technology is the largest sector.

Information Technology723%
Industrials413%
Healthcare413%
Financials413%
Consumer Staples413%
Consumer Discretionary310%
Communication Services27%
Materials13%
Energy13%

When creating a frequency distribution for numerical values they must first be grouped into ranges. The next frequency distribution is the same companies sorted by market capitalization. Here we see that the vast majority are smaller than 250 billion, there are none at all between 500 billion and 1 trillion, and there are 2 that are larger than 1 trillion.

< 250 Billion20
250-500 Billion8
500-750 Billion0
750 Billion – 1 Trillion0
> 1 Trillion2

When creating a frequency distribution, if a large number of the bins have a value of zero the ranges are probably too narrow.

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