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Geometric mean

The geometric mean of a set of positive data is defined as the product of all the members of the set, raised to a power equal to the reciprocal of the number of members. The geometric mean is useful to determine "average factors". For example, if a stock rose 10% in the first year, 20% in the second year and fell 15% in the third year, then we compute the geometric mean of the factors 1.10, 1.20 and 0.85 as (1.10 × 1.20 × 0.85)1/3 = 1.0391... and we conclude that the stock rose on average 3.91 percent per year.

The geometric mean of a data set is always smaller than or equal to the set's arithmetic mean (the two means are equal if and only if all members of the data set are equal). This allows the definition of the arithmetic-geometric mean, a mixture of the two which always lies in between.

 
See also: average, arithmetic mean, arithmetic-geometric mean, harmonic mean



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