How to use the average percentage difference
The meaning of the average percentage difference depends on the nature of the two numbers involved in the calculation. For instance, if you're looking at a comparison between prices of Brent crude oil on the global market and prices of West Texas Intermediate crude on the U.S. market, the average percentage difference reveals how the two markets interact.
More generally, though, the average percentage difference is a useful indicator for examining future trends. If you know that the average percentage difference over long periods of time tends to stay constant, then future departures from that average can indicate temporary periods of irrational behavior. That can create investing opportunities for contrarians willing to wait for a reversion to the mean.
The math behind average percentage differences isn't complicated, but how you use the information can be. Over time, you can build expertise to help you interpret exactly what a given average percentage difference will mean in the markets you're analyzing.
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