Definition
A histogram is a graphical representation commonly used in statistics to display the distribution of a set of continuous data, such as stock prices over a certain period. On the other hand, a bar graph is used to compare discrete categories of data, such as the sales of different products in a company. While both use rectangular bars, in a histogram, bars are usually adjacent representing the frequency of data in range or intervals, while in a bar graph, bars are separate representing different categories.
Key Takeaways
- In the financial world, both a histogram and a bar graph are used to display data visually, but they’re used in different contexts. A histogram typically represents the frequency of occurrence of specific phenomena which lie within a specific range of values and are arranged in consecutive and fixed intervals, such as income ranges, whereas a bar graph compares different groups or categories, such as sales figures of different companies.
- A histogram’s bars are usually presented in contiguous manner, meaning they touch each other to show that original variables are continuous. On the other hand, a bar graph presents bars with space between them, as they represent discrete data or categories which are often not in a specific order.
- In terms of appearance, histograms are only able to use vertical bars while bar graphs can use either vertical or horizontal bars. The length or height of the bar in a histogram indicates the frequency of occurrences for each bin, with the bins representing a range of values, while in a bar graph, the length or height of the bar represents the measured value or frequency of the category represented.
Importance
Understanding the distinction between a histogram and a bar graph is crucial in finance because each provides different insights for data analysis.
A histogram illustrates the frequency of continuous data points, which is valuable for understanding distribution patterns, such as return rates on a financial asset or income levels in a population.
This can help identify trends, anomalies, and anticipate future patterns.
On the other hand, a bar graph compares discrete data, making this method useful for presenting categorical information like the performance of different investment sectors or annual company revenues.
Both visualization tools play a critical role in financial analysis, contributing to well-informed decision making and strategic planning.
Explanation
Histograms and Bar graphs are both visual tools used in financial analysis, statistics, and economics, but they serve different purposes and present data in distinctive ways. A histogram, for its part, is primarily used to depict the frequency distribution of a set of continuous or interval data.
In finance, histograms could be used to visualize the distribution of returns for a certain stock or the entire market, providing essential insights into volatility, dispersion, and the skewness of return. By closely examining a histogram, finance professionals can identify patterns that can aid in predicting future market trends or company performance.
On the other hand, a Bar graph is an effective tool to compare discrete categories or groups. It uses either horizontal or vertical bars to show comparisons among categories, with one axis of the chart showing specific categories being compared and the other axis representing a discrete value.
In finance, Bar graphs are often used to compare financial data among different sectors, companies, time periods, or other categories, which aids in making investment decisions, strategic planning and identifying trends or anomalies. For instance, an investor might use a bar graph to compare the revenues of different companies in the same sector or to track a company’s revenue growth over multiple quarters or years.
Examples of Histogram vs Bar Graph
Example 1: Investment Portfolio AnalysisA histogram can be used by a financial adviser to understand the distribution of returns of a particular investment portfolio. Here, the horizontal-axis represents different ranges of returns and the vertical-axis represents the number of times the return falls in those particular ranges.On the other hand, a bar graph can represent the performance of each individual asset in the portfolio over a specific time period. Here, each bar on the horizontal-axis represents an individual asset such as stocks, bonds, and the vertical-axis represents the performance metric, like rate of return or total growth. Example 2: Sales Data AnalysisA company financial analyst can use a histogram to understand the distribution of sales throughout a year. The histogram can detail how many months had sales between certain ranges, allowing for a clearer understanding of commonly occurring sales figures.In the same scenario, a bar graph could be used to directly compare sales month by month showing how much was sold each month. Each bar would represent a month, with the height indicating the sales in that month. Example 3: Credit Score AnalysisIn a credit agency, a histogram might be used to understand the distribution of credit scores among a population. The credit score ranges (for example 600-650, 650-700, etc.) can be represented on the horizontal-axis and the number of people in those ranges on the vertical-axis.The agency could use a bar graph to showcase the number of people who fall into categories like ‘excellent’, ‘good’, ‘fair’, ‘poor’, etc, based on their credit scores. In this case, each bar could represent a category and the height of the bar would show the count of people in that category.
FAQ: Histogram vs Bar Graph
What is a Histogram?
A histogram is a type of graphical representation that organizes a group of data points into a specified range. It is an accurate method to visually represent the distribution of numerical data, and it doesn’t have any gaps between bars.
What is a Bar Graph?
A bar graph is a chart that uses either horizontal or vertical bars to show comparisons among categories. They usually compare categories separate from one another, and have gaps between bars.
What is the main difference between a Histogram and a Bar Graph?
The main difference between a histogram and a bar graph is the kind of data they present. Histograms are used to display numerical data, while a bar graph is used to compare different categories, which are usually separate and not in a sequential range.
When should I use a Histogram over a Bar Graph?
Use a histogram when dealing with large data sets and continuous data. If your aim is to show the distribution of the data and make comparisons, a histogram is the better choice.
When should I use a Bar Graph over a Histogram?
You should use a Bar Graph when you want to compare different categories that are separate from one another. It also works well when dealing with nominal or ordinal categories of data.
Related Entrepreneurship Terms
- Distribution Plot
- Data Visualization
- Frequency Distribution
- Categorical Data
- Statistical Analysis
Sources for More Information
- Investopedia: This platform provides comprehensive information about various finance terms including the differentiation between a histogram and a bar graph.
- Khan Academy: On this educational website, there are several video-based lessons that perfectly illustrate the difference between a histogram and a bar graph.
- BBVA: The financial organization’s website also provides various resources on understanding financial terminologies, including Histogram vs. Bar Graph.
- The Institute for Statistics Education: This platform provides online education in the field of statistics and data science, including lessons on Histograms and Bar Graphs.
