The mean (arithmetic mean) is the sum of values divided by their count — the most basic measure of central tendency. In trading it is most often computed on a return series to estimate the expected return per period.
Arithmetic mean is biased upward for compound growth: a series of returns averaging 1% arithmetically does not necessarily compound to 1% per period. For compound growth, use the geometric mean: (Π(1 + r_i))^(1/N) − 1.
The mean of a return series alone is not actionable — a strategy is only useful if its mean return is meaningfully positive relative to its volatility. That ratio is the Sharpe ratio.
Formula
mean = Σ x_i / N
Example
Daily returns [0.01, 0.02, -0.01, 0.005, 0.015]. Mean = 0.04 / 5 = 0.008 = 0.8% per day.
How Noon Barbari uses Mean
Every concept here is implemented in the platform. Open the relevant docs or tool to see it in action.
How we report backtests →Related terms
- Statistics
Median
Middle value of a sorted series — robust to outliers, unlike the mean.
- Statistics
Standard deviation
Square root of variance — the most common volatility measure in trading.
- Statistics
Expectancy
Average profit (or loss) per trade — the most honest measure of edge.
- Statistics
Sharpe ratio
Excess return over the risk-free rate per unit of total volatility.