Trend Chart Methodology
Determining Standard Deviation
Standard deviation describes how varied the distribution of reported values for a given quarter are, with respect to the mean (average.) One (1) standard deviation accounts for roughly 68% of all the data within the set. To encompass more data, two (2) standard deviations can account for nearly 95% of the dataset, and three (3) standard deviations would account for approximately 99%. For the timber market report, we only use one (1) standard deviation. What we're trying to show is how varied the prices we report for each quarter are.
In a simple example, we have 5 values reported in a given quarter for a specific species. $100, $125, $150, $175, $200. The average would be:
Standard deviation will examine a specific amount of data (68%) and how far from the average (mean) the data needs to cover in order to encompass that amount of data.
If we were to take the standard deviation of a more widely separated set of values, we have to include a larger spread to still encompass 68% of the set. We'll find that even though the average is the same as the previous example, the dataset varies more widely, and therefore the standard deviation will be larger.