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What cluster allocation does, how it does it, why it is useful and how does it differ from the traditional portfolio allocation - Research Paper Example

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Cluster allocation procedure differs significantly from traditional schemes such as stratified allocation. The main difference between these two models of allocation lies with the inclusion of the strata or cluster. …
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What cluster allocation does, how it does it, why it is useful and how does it differ from the traditional portfolio allocation
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Extract of sample "What cluster allocation does, how it does it, why it is useful and how does it differ from the traditional portfolio allocation"

Download file to see previous pages The scheme treats the cluster as the sampling unit and conducts an analysis on the population of clusters. Consequently, the procedure reduces the cost of examination by increasing sampling efficiency. Clusters include geographical area and often the examiner treats various respondents or subjects within a local area as a cluster (Atzeni 40). Furthermore, the examiner increases the total sample size to establish equivalent accuracy in the estimators. The findings of the observation of any of the selected sample may not present an accurate highlight of the whole population, but they are mainly close to the actual behavior of the study subject. How cluster allocation functions The model is a sampling technique utilized when “natural” but uniform groupings are evident in a statistical population. In cluster allocation, the researcher assumes various steps in defining the sample population or constituents instead of selecting all subjects from the whole population. The examiner divides the entire population into various clusters from which he or she selects a random sample of groups (Karuri and Rainer 30). Consequently, the examiner gathers essential information from the random sample of elements in each selected group. One may evaluate every element in the selected groups or may select subsamples of fundamentals from each group. The procedure is motivated by the need of reducing the aggregate cost of the analysis. The scheme demands elements within a group to be heterogeneous while presenting homogeneity between group means. Furthermore, each cluster should be a subunit of the entire population. Clusters should also be mutually restricted and jointly exhaustive. This enhances systematic examination while minimizing sampling errors (Atzeni 37). The analyzer may utilize a single-stage cluster approach or two-stage cluster model in his or her analysis. In the single-stage scheme, one uses all elements from each selected group. However, in the two-stage cluster model, one conducts random sampling on the elements from each of the selected group. Often, cluster allocation is only applicable when groups are approximately of the same size. In situations where the clusters have varying sizes, the examiner may combine clusters to make them assume relatively similar sizes (Karuri and Rainer 32). Usefulness of cluster allocation Cluster allocation is useful in reducing the amount of funds used in the examinations. The cluster allocation procedure provides the examiner with the opportunity of concentrating resources on the few randomly selected groups instead of evaluating the entire population. This makes the examination procedure less costly, simple and fast. Particularly, the model reduces traveling and listing cost, which are the major finance consuming procedures in sampling. For example, compiling statistics about each household in a city would be challenging, while compiling statistics about various blocks of the city would be easier. In such a situation, the traveling and the listing efforts will be reduced considerably (Karuri and Rainer 53). The procedure is essentially useful in minimizing the potentially large estimation errors in diversification analysis (Geotzmann & Wachter 271). The procedure applies the concept of mean-variance in examining essential elements. The mean-variance model evaluates a set of subjects’ weights across assets, which establishes the highest probable return for each specific level of investor risk. Developing target groups enhance the accuracy of the procedure because one can conduct a detailed examination. Furthermore, the model provides an effective procedure of evaluating large populations (Geotzmann & ...Download file to see next pagesRead More
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