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# vlaxmanan's  Instablog

vlaxmanan
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I have advanced degrees, Master’s (S. M.) and Doctoral (Sc. D.), in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA and Bachelor's and Master's degree in Mechanical Engineering, from the University of Poona (now Pune) and the Indian Institute of Science,... More
My blog:
• ##### Mayor Bloomberg's Comparison Of NYC Homicides Rates And Wall Street's Ratio Analysis

In his address on Public Safety, on April 30, 2013, New York Mayor Bloomberg commended the NYPD for the record low homicides, 419 in 2012, the lowest annual homicides number in New York history. Then, he started comparing the homicide rate for NYC (419 murders in 2012 or 5.125 per 100,000 population) with the homicides rates for several cities and ended up, "... if we had a murder rate like Detroit's, we would have more than 4500 New Yorkers dead in 2012, not 419. That's a factor of 10."

Essentially, Bloomberg was using the ratio y/x where y is the number of homicides and x the population to compare various cities. NYC has a ratio of 5.125 which is about one-tenth the y/x for Detroit and so on.

This is also amazingly what Wall Street does. If company A had a profit margin of 20% it is better than company B with a profit margin of 5%.

This is also what I have been trying to call attention to here with my Instablog posts. A few seem to be taking notice and that is a good sign. This few must grow into hundreds and thousands to make the difference. And, a difference must be made.

And, so I urge everyone to read my analysis of what Mayor Bloomberg did and what he should have done. What is the valid basis for comparing the homicides rate for various cities? What is apples to apples and what is apples to oranges? How do we tell apples from oranges?

The solution lies in studying the nature of the underlying x-y relation, not just the y/x ratios. When we use y/x ratios, we are more likely to get into apples and oranges comparisons. The x-y diagrams, on the other hand, tells us what is apples and apples and oranges and oranges.

If you understand this, you will also understand how to compare different companies (based on profit margin, EPS, etc.), airlines (based on their On-Time arrivals ratios, missed baggages ratio, the denied boarding, etc.) and countries (based on debt/GDP ratio, for example, unemployment rates, etc) and literally hundreds and thousands of other problems of interest to us, where we use simple y/x ratios to make sense of our empirical observations. Here's the link to the full article.

My apologies again for doing this. Our forum here does not permit uploading of pdf files and I haven't quite figured out what to do with uploading of figures here using current posting tools.

Jun 17 4:07 AM | Link | 1 Comment
• ##### What Is Wrong With Ratio Analysis Used By Wall Street? Baseball Again Offers An Interesting Example

I have tried to answer the question posed in the title by appealing to baseball stats once again.

It appears to me that baseball fans, much more than Wall Street analysts, know the difference between the ratio y/x and the ratio ∆y/∆x. Here x is the number of At Bats (NYSE:AB) and y the number of Hits (NYSE:H). The ratio y/x = H/AB = BA is the batting average, one of the three categories in which a player must lead to win the Triple Crown, the other two being home runs (NYSE:HR) and Runs Batted In (RBI). When Miguel Cabrera - with a batting log of (At Bats, Hits, HR) = (4, 4,3), (4, 1,1), (4, 2,1) (3, 2,1), over a four-game stretch from May 19 to May 23, 2013 - hit six home runs total, with a home run in each of the four consecutive games, no one was thinking about the ratio y/x. Everyone was just using the ratio ∆y/∆x = 9/15 = 0.600 and talking about the incredible stretch with a BA of 600. Here ∆y = 9 is the additional hits (9 = 4 + 1 + 2 + 2) and ∆x = 15 is the additional AB (15 = 4 + 4 + 4 + 3).

Rather surprisingly, as discussed in detail in an article I uploaded yesterday, the same logic is not being used to predict the end of the season RBI for Cabrera who is widely believed to be on pace to break the "untouchable" single-season RBI record of Hack Wilson, established in 1930 and also capture a second straight Triple Crown.

The implications of using the rate of change h = ∆y/∆x, or the derivative, dy/dx, of the mathematical function relating these three quantities is discussed here (and in two companion articles, click here and here). The broader applications of such an analysis to many problems in the so-called "soft sciences" (economics, finance, business, social and political sciences, etc.) is also discussed, briefly.

See link here www.scribd.com/doc/144798463/What-is-Wro...

May 31 1:51 PM | Link | Comment!
• ##### Trust Me, The Financial World Will Change Forever If Wall Street Starts Analyzing Financial Data Like We Do Baseball Statistics: Miguel Cabrera

The Detroit Tigers' star player Miguel Cabrera's baseball batting stats (he was in the news couple days ago) is discussed here to illustrate the meaning of Einstein's idea of a "work function", outside physics. Cabrera's four game stretch from May 19, 2013 to May 23, 2013, has been the topic of discussion in the baseball world, and also the subject of an interesting video clip (home run GIF).

It is shown here that an understanding of the significance of the high batting average in this four game stretch will also lead to a better understand of many other complex problems in the business world, and in the so-called "soft sciences", where we now use simple y/x ratios to make sense of our (x, y) observations. However, this focus of the behavior of the y/x ratio has led to a general lack of appreciation of the nature of the underlying x-y relation, which can be either linear (of the type y= hx +c, as in many commonly observed in many problems) or nonlinear (y = m*x^n*exp(-ax) as in the traffic fatality problems). The reason for the often bewildering variation in the y/x ratio can be understood if we pay attention to the nonzero intercept c which appears in many problems, as we can appreciate from an analysis of the baseball batting stats. This nonzero intercept is shown to be related to the missing hits in baseball and is also related to the work function conceived by Einstein to explain the phenomenon known as photoelectricity.

May 26 12:00 PM | Link | 2 Comments
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