The mean is the average of two or more numbers. There are two ways to calculate the mean. Each method is used for different reasons. One way to calculate the mean is called the arithmetic average and the other is the geometric average. The arithmetic average is the simpler calculation. It only requires adding the numbers and dividing the total count of numbers. For example, if you want to find the mean of 3, 5, and 9, you add them to get 17 and divide by 3 (total numbers) to get 5.667.
The geometric mean involves multiplying the numbers and taking the nth root. Using the same three numbers from above, we get 135 after multiplying. Now we take the cube root (i.e., nth root) of 135 to get 5.13. In finance, the geometric mean is used more often since it keeps the dependency from one value to the next. The arithmetic mean treats each number as an independent value.
