EconStatsCraft › Heat map

Heat map

A grid of two categories with colour for the value - the chart for a table too big to read as numbers. Region against year is the common case, and the pattern in the colour is the finding.

What it needs

The intuition

A heat map puts a value at every cell of a grid and encodes it as colour. It is the right chart for a matrix - a correlation matrix, a calendar, a region-by-year table - because it shows the whole thing at once and lets pattern-finding do the work. Everything then depends on the colour scale, which is where nearly all heat maps go wrong.

When to use it

Two categorical dimensions and one measurement - region by year, industry by country, hour by day. Also for correlation matrices, where the pattern of blocks is the finding.

Where the estimator comes from

Each cell (i,j) is filled with f(v_{ij}) where f maps values to colours. The map must match the data: a SEQUENTIAL scale for values with a natural low-to-high ordering, and a DIVERGING scale, symmetric about a meaningful midpoint, for values that run negative to positive. For correlations the midpoint must be zero and the range fixed at [-1,1], or the same colour means different things in two charts. Perceptually uniform maps such as viridis are built so equal steps in value are equal perceived steps in colour, which rainbow maps are not.

What it assumes

Statistical properties

How to read the output

A worked reading

A correlation matrix drawn with the colour range fitted to the data - say -0.2 to 0.9 - looks dramatic: the weakest correlation is deep blue and the strongest deep red. Fix the range at -1 to 1, as correlations require, and the same matrix is mostly pale, which is the truth: nothing in it is near either extreme. The first chart is not mislabelled or miscalculated, and every reader will come away with a stronger impression of the relationships than the numbers support.

Symptom → diagnosis → what to do

If you see thisIt meansDo this
Sharp bands in smooth dataA rainbow colour mapUse viridis or another uniform map
An all-positive matrix looking half negativeDiverging scale centred on the meanCentre it on zero
No visible patternRow and column orderCluster or sort before concluding there is none
Correlation heat maps not comparableFree colour range per chartFix the range at -1 to 1
Cells all one colourOne outlier stretching the scaleClip, or use a rank or log scale, and say so
Red-green diverging scaleUnreadable for around 8% of menUse blue-orange

Common mistakes

Where to read this properly

See also

Correlation, the matrix this most often displays. World map, which is a heat map on a geography.

Related Charts

Line chart · Area chart · Bar chart · Stacked bar · Scatter plot · Bubble chart · Histogram · Box plot · Pie chart · Rebased to 100 · Lorenz curve and Gini

All analyses

Charts

Line chart · Area chart · Bar chart · Stacked bar · Scatter plot · Bubble chart · Histogram · Box plot · Pie chart · Heat map · Rebased to 100 · Lorenz curve and Gini

Maps

World map · Bivariate map · Flow map · India - state map · India - district map

Explore

Descriptive statistics · Summary by group · Two-way table · Classical statistical tests

Regression

Multiple regression (OLS) · Logit / Probit · Tobit (censored) · Truncated regression · Multinomial logit · Ordered logit / probit · Quantile regression · Poisson / Negative binomial

Time series - one series

Time-varying coefficients (Kalman) · Unit root tests · Correlogram (ACF / PACF) · ARIMA / SARIMA · Rolling-origin cross-validation · Theta method · Unobserved components · STL forecasting · Forecast combination · Markov regime switching · Change frequency (resample) · ARCH / GARCH volatility · Decompose & filter · Spectral analysis · Exponential smoothing · Forecast accuracy

Time series - several series

Yield curve (Nelson–Siegel / Svensson) · Dynamic factor model · Dynamic regression (ARIMAX) · Structural VAR · VAR · Granger causality · Cointegration · VECM · ARDL & bounds test

Panel data

Panel regression · Panel cointegration tests · Heterogeneous panel: Mean Group & PMG · Gravity model of trade · Dynamic panel GMM · Panel diagnostics · Panel unit-root tests

Multivariate statistics

Principal components (PCA) · Factor analysis · Cluster analysis

Marketing research

Conjoint analysis · MaxDiff (best–worst scaling) · TURF - reach of a product line · Price sensitivity (Van Westendorp) · Market basket analysis · Perceptual map · Scale reliability (Cronbach’s alpha) · Key driver analysis

Causal

Spatial autocorrelation · Spatial regression · Heckman selection · Instrumental variables (2SLS) · Difference-in-differences · Staggered difference-in-differences · Regression discontinuity · Matching & weighting · Oaxaca–Blinder decomposition

Finance & risk

Black–Scholes option pricing · Bond price, duration & convexity · Merton distance to default · EMI / home loan planner · CAPM / beta estimation · Multi-factor model · Portfolio optimization · Value at Risk & Expected Shortfall · Performance & drawdown · Time value of money & NPV/IRR · Equity valuation (DDM, FCF, residual income) · Cost of capital (WACC) · Binomial option pricing · Option strategies (payoff & profit) · Forwards, futures & swaps · Credit risk & Basel capital · Extreme value theory (tail risk)

Actuarial

Life table · Life annuity · Life insurance pricing · Chain ladder reserving · Buhlmann credibility · Survival analysis · Mortality graduation · Aggregate loss model · Ruin probability · Multi-state Markov model · Loss severity fitting

Tests & breaks

Monte Carlo experiment · F-test, Wald & Chow · Structural breaks & stability

Machine learning

Regression vs machine learning · Ridge / Lasso / Elastic Net · Random forest · Gradient boosting

Open the workspace →

Starting engine…

EconStatsCraft rigorous, plain-spoken econometrics

Econometrics that explains itself.

Regression, panel data, time series and the whole battery of tests. Every result is followed by a verdict you can defend.

Load a dataset to see it here.