How much noise is there in the price of, for example, the Dow Jones?
1%, 2%, 3% or maybe 10%?
In electronics there are several terms that describe the noise in a signal.
A few basic concepts:
In statistics, the “mean” is the average values of a signal (data).
In electronics, the average is usually called the DC (Direct Current) of the signal.
In statistics, the standard deviation is a measure of the deviation from the mean.
In electronics, the standard deviation is usually called the AC (Alternating Current) of the signal, so how the signal fluctuates around its mean.
A commonly used term in electronics is the RMS (Root-Mean-Square) value, the RMS value measures both the DC and the AC component.
When a signal has no DC component, the RMS value is equal to the standard deviation and when no AC component is present, the RMS value is equal to the average.
Another commonly used term is the CV (Coefficient of Variation) which shows the amount of noise, in a signal, in percentages.
CV = (Standard deviation / Mean) x 100%
The RMS -value of the Dow Jones (screenshot) is almost equal to the average of the signal meaning that there is (almost) no AC component present.
The CV value (noise) of the Dow Jones (screenshot) is on average <u>between 1 – 2%.</u>
(The CV value of Bitcoin is around 20%)
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