## Statistical Significance Definition

Statistical significance is the probability of an observation not being caused by a sampling error. It implies that the observation has a specific cause for it. Therefore, in order to consider an observation statistically significant, it has to clear the testing.

In order to prove statistical significance, the dataset has to reject the null hypothesisNull HypothesisNull hypothesis presumes that the sampled data and the population data have no difference or in simple words, it presumes that the claim made by the person on the data or population is the absolute truth and is always right. So, even if a sample is taken from the population, the result received from the study of the sample will come the same as the assumption.read more. To prove the null hypothesis wrong, the p-value of the observation should be less than the significance level. The p-valueP-valueP-Value, or Probability Value, is the deciding factor on the null hypothesis for the probability of an assumed result to be true, being accepted or rejected, & acceptance of an alternative result in case of the assumed results rejection. read more is the probability of an observation being caused by random factors.

##### Table of contents

### Key Takeaways

- Statistical significance shows that observation is caused by a specific reason and not a random factor.
- The significance level is represented by α. The researcher ascertains its values and is usually 0.01, 0.05, or 0.1.
- The null hypothesis assumes that the research is false. However, an alternative hypothesis that is the researcher’s assumption can prove true, rejecting the null hypothesis.
- The conventional value of α = 0.05. Therefore, if the p-value for a dataset ≤ 0.05, then the result is statistically significant. If the p-value is> 0.05, then the research may not be statistically significant.

### Understanding Statistical Significance Levels

Statistical significance is widely applied as a quantitative research tool by researchers for decision making. This tool is applied in a variety of different fields such as business, marketing, advertising, investing, and finance.

The following two factors determine significance.

**Sample Size**: The number of observations immensely contribute to the level of significance. A large dataset (necessarily a randomized sample) often eliminates the sampling errorSampling ErrorThe sampling error formula is used to calculate statistical error that occurs when the person conducting the test doesn’t select a sample that represents the whole population under consideration. Formula for sampling error = Z x (σ /√n)read more.**Effect Size**: The correlation between the two datasets or variables is termed effect size. A greater effect sizeEffect SizeEffect size measures the intensity of the relationship between two sets of variables or groups. It is calculated by dividing the difference between the means pertaining to two groups by standard deviation. It is a statistics concept.read more, therefore, implies that two different studies show very similar values. Greater effect size indicates that the data is statistically more significant.

###### Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

**–>>** If you want to learn Financial Modeling & Valuation professionally , then do check this Financial Modeling & Valuation Course Bundle (**25+ hours of video tutorials with step by step McDonald’s Financial Model**). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

The alpha value (α) represents statistical significance. The traditional value of alpha is 0.05, which is 5%. It serves as a 95% threshold for the significance. It implies that the chance of result accuracy is 95%.

For achieving statistical significance, at least one of the given conditions should be fulfilled:

- The p-value should be lower than the value of alpha.
- The null hypothesis values should have no place in the confidence interval.

The confidence intervalConfidence IntervalConfidence Interval refers to the degree of uncertainty associated with specific statistics & it is often employed along with the Margin of Error. Confidence Interval = Mean of Sample ± Critical Factor × Standard Deviation of Sample. read more refers to the assured range in which the actual values fall. For a p-value of 0.05, that is 5%, the remaining 95% is considered the confidence interval.

For Example, in June 2020, ASPEN Trial did not achieve Statistical Significance on its primary endpoint. This was reported by Reuters.

### Statistical Significance Test (P-Value)

The Statistical significance comprises finding the result and validating the result. The dataset has to successfully reject the null hypothesis.

#### #1 – Statistical Hypothesis Testing

A hypothesis is a researcher’s assumption. Researchers assume that they will get a particular result, even before conducting the test. This assumption is based on the relationship between the different variables or datasets.

The two types of hypothesis used for data analysis are as follows:

**Null Hypothesis**: Now, if the theory proposed by the researchers stands false, the researcher’s hypothesis is considered null. This is denoted by H0.**Alternative Hypothesis**: However, if the researcher’s theory proves valid, it is referred to as the alternative hypothesis. This is denoted by H1.

#### #2 – Statistically Significant p-value

A p-value denotes probability value, which is the possibility of an outcome resulting from randomness or coincidence instead of facts. Thus, the level of statistical significance can be analyzed with the help of a p-value which ranges between 0 and 1. The statistical result is believed to be accurate when the p-value is equal to or less than 0.05. In other words, there is only a 5% chance that the data was caused by randomness or coincidence.

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked

For eg:

Source: Statistical Significance (wallstreetmojo.com)

Therefore, the testing will result in the following two possibilities.

**p-value ≤ 0.05**: A p-value equal to or smaller than 0.05 indicates that the null hypothesis is probably false. Thus, there are chances of the result being more statistically significant.**p-value > 0.05**: On the contrary, a value exceeding 0.05 signifies that the null hypothesis seems likely, and the result may not be statistically significant.

### Statistical Significance Calculation

Consider the following problem based on a hypothetical scenario. Samuel, an amusement park owner, wants guests to spend more time in the park. The average time spent by 20 guests who visit the park is 199 minutes. Samuel decides to install new rides. For the test, the significance threshold is assumed at 5%, the sample mean is 200 minutes, and the standard deviation is 200 minutes. Based on the given data, conduct a significance test for Samuel.

Given Data:

- µ = 199 minutes
- n = 20
- µ remains 199 minutes before installing new rides
- µ > 199 minutes after installing new rides
- α = 5% or 0.05
- x̄ = 200 minutes
- σ = 200 minutes

**Calculation**

We will be applying the z-test here,

Z = (x̄ – μ) / √(σ2 / n)

Z = (200 – 199) / √(200 / 20)

Z = 1 / 3.16228

Z = 0.31623 = 0.3

Now let’s determine the z-score or the p-value on the given z-table:

Z | 0.00 | 0.1 | 0.2 | 0.3 | 0.4 |

0.0 | 0.50000 | 0.50399 | 0.50798 | 0.51197 | 0.51595 |

Thus, the p-value is 0.51197.

Here, **p-value > α, i.e****., ****0.51197 > 0.05**

Therefore, the null hypothesis can be true, and the result is not statistically significant.

*Users can alternatively select from various calculators available online to conduct significance tests.*

### Statistical vs Practical Significance

Statistical significance rules out random coincidence and indicates that the data is a result of a specific cause. However, practical significance finds out the magnitude of that effect and its relevance in the real world.

While researchers use sample size and p-value for ascertaining statistical significance, the effect size of the datasets indicates practical significance.

Thus, acquiring statistical significance without determining the practical significance would not be very helpful.

### Frequently Asked Questions (FAQs)

**What is statistical significance in research?**

Significance tests are widely used in scientific, economic, and medical research to determine the reliability of the test results by analyzing the chances of the null hypothesis being true.

**How to determine statistical significance?**

The steps for calculating significance are as follows.**1.** Find the null and alternative hypotheses, i.e., H0 and H1. **2.** Assume the threshold of significance or significance level (α). **3.** Acquire sample and data to carry out the test. **4.** Run statistical tests like z-test, T-test, ANOVA or Chi-Square. **5. **Check if the data is statistically significant by determining the p-value. **6.** Interpret the result or conclude the research.

**Why is the p-value of 0.05 significant?**

A p-value of 0.05 represents the alpha, i.e., the statistical significance threshold. This is the borderline of probability, and therefore any value beyond this is considered statistically insignificant. If the p-value is beyond 5%, then it indicates that more than 5% of the values are caused by chance. As a result, the dataset cannot be used as significant evidence to show causation.

### Recommended Articles

This has been a Guide to Statistical Significance and its Meaning. Here we discuss the significance tests (p-value) and how to understand its levels along with examples and calculations. You may also have a look at the following articles to learn more –

## Leave a Reply