Why Standardization of variables is important?

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In statistics, standardization is the method of placing different variables on an identical scale. This helps you to compare values between different types of variables.

Why Standardization is important?

Data gives more meaning when you compare it to something. For example, it’s nice to know that your online product sales have reached 100 people this month, but that doesn’t tell you what you should do next year. If it’s a 50% decrease from last month, it indicates to make improvement in your marketing strategy. If this is a 50% increase you are sure that you’re heading in the right direction.

Let’s take this one step more — data comparisons are not helpful if you have data in different scales of units or irrelevant data. For example, it may be helpful to compare your sales to a certain part of a region where most of the people are online but not in other parts where there fewer people using the Internet.

In this case, both the datasets are on a different scale of measurement. Another example could be measuring the price of a product in INR and USD.

Data standardization is the method of ensuring that your data set could be compared to different data sets. It’s a key part of the research and analysis, and it’s one thing that everybody who makes use of data for comparison should take into account before they even collect, clean, or analyze their first data point.

How to Standardize variables?

To standardize variables, you have to calculate the mean and standard deviation for a variable. Then, for every value of the variable, you have to subtract the mean and divide by the standard deviation.

Every distribution can be standardized. If the mean and the variance of a variable is \mu and \sigma^2 respectively. Standardization is the method of transforming a variable with a mean of zero and a standard deviation of 1.

What’s a Standard Normal Distribution?

A normal distribution can also be standardized. The outcome is called as a standard normal distribution.

You could also be questioning how the standardization goes down right here. Well, all we have to do is just shift the mean by \mu, and the standard deviation by \sigma.

The letter Z is used to indicate it. As I already mentioned, its mean is zero and its standard deviation: 1.

The resultant standardized variable is called a z-score. It is the identical as the original variable, minus its mean, divided by its standard deviation.

A Case in Point

Let’s take an approximately normally distributed set of numbers: 10, 20, 20, 30, 30, 30, 40, 40, and 50.

Its mean is 30 and its standard deviation: 12.24 Now, let’s subtract the mean from all data points.

As shown below, we get a new data set of: -20, -10, -10, 0, 0, 0, 10, 10, and 20.

The new mean is 0, precisely as we anticipated.

On a graph, the curve is shifted towards left, but it has preserved its shape.

normal distribution

The Next Step of the Standardization

So far, we have now a new distribution. It remains to be normal, however with a mean of zero and a standard deviation of 1.22. The subsequent step of the standardization is to divide all data points by the standard deviation. This will drive the standard deviation of the new data set to 1.

Let’s return to our instance.

The original dataset has a standard deviation of 12.24. This is similar to the dataset which we obtained after subtracting the mean from every data point or values.

Important: Adding and subtracting values to all data points doesn’t change the standard deviation.

Now, let’s divide every data point by 12.24 As you can see in the image below, we get: 0.81,1.63,1.63,2.45,2.45,2.45,3.26,3.26,4.08

If we calculate the standard deviation of this new data set, we are going to get 1.

And the mean remains to be 0!

The curve also remains the same as shown below.

standardization of variables

This is how we will acquire a standard normal distribution from any normally distributed data set.

How to Standardize variables in SAS?

Standardizing variables in SAS is very simple using the proc standard procedure as below.

PROC STANDARD DATA=product MEAN=0 STD=1 OUT=product2;
  VAR price ;
RUN;

Conclusion

Standardization of variables predictions and inferences of variables a lot simpler. For example, a value of 0.5 in a standardized dataset indicates that the value for that observation is half a standard deviation above the mean, while a value of -2 indicates that it has a value of 2 standard deviations lower than the mean.

The objective of standardizing variables is to make sure all variables contribute evenly to a scale when items are added together which makes it easier to interpret results of regression or other analysis.

Also Read:

Confidence Interval for Population Mean
Central Limit Theorem

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