Compute the geometric mean of any set of positive numbers. Understand the formula, see step-by-step insights, and apply it to real-world scenarios.
The geometric mean is a type of average that indicates the central tendency of a set of numbers by using the product of their values. It is defined as the nth root of the product of n numbers:
GM = (x₁ · x₂ · … · xₙ)1/n
For example, the geometric mean of 4 and 9 is √(4·9) = √36 = 6.
The arithmetic mean sums values, while the geometric mean multiplies them. For positive numbers, the geometric mean is always less than or equal to the arithmetic mean (AM–GM inequality). The geometric mean is more appropriate when values are multiplicative or exponential in nature.
| Property | Arithmetic Mean | Geometric Mean |
|---|---|---|
| Formula | Σx / n | (Πx)1/n |
| Sensitive to extreme values? | Yes | Less sensitive (log transformation reduces impact) |
| Zero or negative values | Allowed | Usually undefined; zero yields zero, negative yields complex (not supported) |
| Common use | General average | Growth rates, ratios, indices |
Suppose an investment returns +10%, +20%, and -5% over three years. The arithmetic mean return is (10+20-5)/3 = 8.33%, but that ignores compounding. The geometric mean (as a growth factor) is calculated as (1.10 × 1.20 × 0.95)1/3 ≈ 1.075, or a 7.5% average annual return. This accurately reflects the actual growth of the investment.
For large numbers, logarithms can be used: ln(GM) = (1/n) Σ ln(xi). Then GM = exp( that average of logs ). This method avoids overflow.