What Is a Line Graph?

A line graph—also known as a line plot or a line chart—is a graph that uses lines to connect individual data points. A line graph displays quantitative values over a specified time interval. In finance, line graphs are commonly used to depict the historical price action of an asset or security.

Line graphs can be compared with other visualizations of data including bar charts, pie charts, and (in trading) candlestick charts, among others.

Understanding Line Graphs

Line graphs use data point “markers,” which are connected by straight lines. These data points, connected by straight lines, aid in visualization. While line graphs are used across many different fields for different purposes, they are especially helpful when it is necessary to create a graphical depiction of changes in values over time.

Line graphs are often used in finance to create visual representations of values over time, including changes in the prices of securities, company revenue sheets, and histories of major stock indexes. They are also useful for comparing different securities. In investing, specifically with respect to the field of technical analysis, line graphs are used by investors to visualize trends, which can greatly aid them in their analyses.

There are some limitations to line graphs. For example, line graphs often lose clarity when there are too many data points. It is also easy to manipulate them visually in order to achieve certain effects. For example, the apparent degree of change can be visually manipulated by adjusting the range of data points on the axes.

Constructing a Line Graph

Line graphs consist of two axes: x-axis (horizontal) and y-axis (vertical). Each axis represents a different data type, and the points at which they intersect is (0,0). The x-axis is the independent axis because its values are not dependent on anything measured. The y-axis is the dependent axis because its values depend on the x-axis’s values. 

Each axis should be labeled according to the data measured along that axis. Then, each axis should be divided in appropriate increments (e.g., day one, day two, etc.). For example, if measuring the changes in a stock’s prices for the previous two weeks, the x-axis would represent the time measured (trading days within the period), and the y-axis would represent stock prices. 

When using line graphs to track the price of a stock, the data point most commonly used is the closing price of the stock. 

For example, assume that on day one of trading, a given stock’s price was $30, resulting in a data point at (1, $30). On day two of trading, the stock’s price was $35, resulting in a data point at (2, $35).

Each data point is plotted and connected by a line that visually shows the changes in the values over time. If the value of the stock increased daily, the line would slope upward and to the right. Conversely, if the price of the stock was steadily decreasing, then the line would slope downward and to the right.

Types of Line Graphs

There are three main types of line graphs. Although each type is fundamentally rooted in the same principles, each has its own unique situation where it is best to implement and use.

Simple Line Graph

A simple line graph is the most basic type of line graph. In this graph, only one dependent variable is tracked, so there is only a single line connecting all data points on the graph. All points on the graph relate to the same item, and the only purpose of the graph is to track the changes of that variable over time. This graph cannot be used to compare the variable to another variable because only variable is charted.

In the example below, the x-axis is time and the y-axis is the year-over-year change in price for all consumer goods in the United States. This graph of the Consumer Price Index shows the annual rate of inflation and, since it is analyzing just one set of data (all items), there is only one line.

Multiple Line Graph

In a multiple line graph, more than one dependent variable is charted on the graph and compared over a single independent variable (often time). Different dependent variables are often given different colored lines to distinguish between each data set. Each line relates to only the points in its given data set; lines do not cross between dependent variables.

For example, the line graph below shows the Consumer Price Index again. However, this graph shows the change in price for three different categories: medical care (red), commodities (green), and shelter (blue). In this graph, we can see the growth in price for commodities was higher than the other two categories in July 2022. However, shelter or medical expenses were typically the groups that experienced higher inflation over the past decade.

Compound Line Graph

A compound line graph uses multiple variables similar to a multiple line graph. However, the variables are often stacked on top of each other to show the total quantity across all variables. This not only informs users of the relationship between each of the variables, but it informs of how the total changes as well.

In the example below from the Environmental Protection Agency (EPA), there are five dependent variables that range from abnormally dry land areas to exceptional drought areas. The most extreme drought data was graphed first, and any empty space under that line graph was shaded dark red. Then, subsequent sets of data were plotted after, with the empty area below each of those lines shaded their respective colors. In total, this shows the relationship between drought descriptions as well as the total percent of U.S. land area in these categories by year.

Parts of a Line Graph

Line graphs may vary depending optional features or formatting. The highest-quality, easiest to understand line graphs have the following characteristics:

Title

Line graphs may have a title above the graph to succinctly explain what the graph is depicting. Unless you provide a user with written context, the user will often rely on the title to better understand what data is being pulled in. The title may specifically call out a timeframe or limits to the data (i.e. an appropriate title for the compound line graph could be ‘Level of U.S. Dry Land By Year, 2000-2015’).

Legend

The legend explains what each dependent variable is and how to distinguish different sets of data. In the example above, each dependent variable is marked with its own color. The box that explains what each color means is the legend.

Data

Each item of data on a line graph is a reference to a different source that ties the dependent variable to an independent variable. This is the information on your graph; it is the item that creates the dots that get connected to form the lines on your chart. In some examples as seen above, there may be multiple sets of data combined into a single graph. To ensure data is protected and accurate, companies may have specific data integrity analyst or similar positions to monitor database activity.

X-Axis

The x-axis is the set of information that runs along the horizontal, flat portion at the bottom of the line graph. In most line graphs, the x-axis will be related to time, whether it is the different months in a year or the number of weeks that have passed since a product launch.

Y-Axis

The y-axis is the set of information that runs along the vertical, left-side of the graph. Some iterations of line graphs have this set of information on the right. In any case, these numbers count the items being measured. The graph may start at zero, though there are instances where it makes more sense to start at a higher number.

Line

Last, we have the line. The line connects all data points within a single dependent variable. This line’s movement shows the increase and decrease of information across time. It can also easily be compared against other lines as long as all data sets are being measured over similar periods of time. Though overly simplified, this line can communicate to management what actions should be taken to improve operations or strategic planning.

Creating a Line Graph in Excel

You can use a line graph in Excel to display trends over time. In Excel, line graphs are appropriate if you have text labels, dates, or a few numeric labels on the horizontal axis (x-axis). Here are the steps to create a line graph in Excel. (If you are using numeric labels, empty cell A1 before you create the line graph):

1. Enter your desired column headers in Row 1. These columns will describe the different sets of data (i.e. in the example below, the headers differentiate data by animal).
2. Enter your x-axis value in Column A. In the example below, the data is broken up by year, so the years 2017 through 2022 are listed in the first column.
3. Enter your data. For each cell that corresponds to a header and year, enter a relevant figure. If no data exists, enter ‘0’.
4. After inputting in your values, select the range (whatever range encompassing those values). If you want your graph to include headers and labels, select the first row and first column For example, selecting A1:D7, the x-axis can be labeled as ‘Years’ and the y-axis can be labeled as ‘Count of Animals’.
5. On the Insert tab, in the Charts group, click the Line symbol (“Insert Line Chart”).
6. Click “Line with Markers”. This will create a line graph similar to the one below where each data point is marked with a larger point and these points are connected with a thinner line. Many of these formatting items can be adjusted.

Uses of a Line Graph

Different data visualization tools are best used for specific purposes, and a line graph is no exception. Depending on the underlying data, a line graph is best for:

• Tracking changes over time. A line graph is usually formatted with the time periods on the x-axis and the quantity of occurrence on y-axis. Each period was a year, but line charges can be broken into days, weeks, months, or other quantities of time (i.e. days since a new CEO was hired).
• Tracking smaller changes. The range displayed on a graph can be changed to better zoom into data that may not vary too widely. Compared to other types of charts, a line graph can be formatted to have very small increments on the y-axis that make is more clear how tiny changes across time have occurred.
• Comparing changes across more than one group. In the example above, it is very easy to compare the quantity of three different types of costs in a single visual. As each line is represented by a different color, multiple types or groups of data can be tracked at the same time and compared against each other seamlessly.
• Continuous sets of data. Because a line graph relies on a single strain of unbroken data, at least one variable of a line graph should be continuous. In most cases, this variable is time. A non-continuous data set (i.e. the number of animals at the 10 largest zoos in the world) would not be appropriate as there is no reason to link each data point with a line; a bar chart would be more appropriate.

The Bottom Line

When analyzing data over time, one of the best graphical depictions of data is the line graph . A line graph often uses time as its x-axis and a numerical quantity on its y-axis. When data points are marked on the chart, all data points within a single dependent variable are connected with a line, making it very useful tool for analyzing changes over time for one or more variables.

What is an Offset?

An offset involves assuming an opposite position in relation to an original opening position in the securities markets. For example, if you are long 100 shares of XYZ, selling 100 shares of XYZ would be the offsetting position. An offsetting position can also be generated through hedging instruments, such as futures or options.

In the derivatives markets, to offset a futures position a trader enters an equivalent but opposite transaction that eliminates the delivery obligation of the physical underlying. The goal of offsetting is to reduce an investor’s net position in an investment to zero so that no further gains or losses are experienced from that position.

In business, an offset can refer to the case where losses generated by one business unit are made up for by gains in another. Similarly, firms may also use the term in reference to enterprise risk management (ERM), where risks exposed in one business unit are offset by opposite risks in another. For instance, one unit may have risk exposure to a declining Swiss franc, while another may benefit from a declining franc.

Basics of an Offset

Offsetting can be used in a variety of transactions to remove or limit liabilities. In accounting, an entry can be offset by an equal but opposite entry that nullifies the original entry. In banking, the right to offset provides financial institutions with the ability to cease debtor assets in the case of delinquency or the ability to request a garnishment to recoup funds owed. For investors involved in a futures contract, an offsetting position eliminates the need to receive a physical delivery of the underlying asset or commodity by selling the associated goods to another party.

Businesses may choose to offset losses in one business area by reallocating the gains from another. This allows the profitability of one activity to support the other activity. If a business is successful in the smartphone market and decides it wants to produce a tablet as a new product line, gains experienced through the smartphone sales may help offset any losses associated with expanding into a new arena.

In 2016, BlackBerry Ltd. experienced significant losses in its mobility solutions and service access fees. The associated declines were offset by gains in the areas of software and other service offerings, lessening the overall impact to BlackBerry’s bottom line.

Offsetting in Derivatives Contracts

Investors offset futures contracts and other investment positions to remove themselves from any associated liabilities. Almost all futures positions are offset before the terms of the futures contract are realized. Even though most positions are offset near the delivery term, the benefits of the futures contract as a hedging mechanism are still realized.

The purpose of offsetting a futures contract on a commodity, for most investors, is to avoid having to physically receive the goods associated with the contract. A futures contract is an agreement to purchase a particular commodity at a specific price on a future date. If a contract is held until the agreed-upon date, the investor could become responsible for accepting the physical delivery of the commodity in question.

In options markets, traders often look to offset certain risk exposures, sometimes referred to as their “Greeks.” For instance, if an options book is exposed to declines in implied volatility (long vega), a trader may sell related options in order to offset that exposure. Likewise, if an options position is exposed to directional risk, a trader may buy or sell the underlying security to become delta neutral. Dynamic hedging (or delta-gamma hedging) is a strategy employed by derivatives traders to maintain offsetting positions throughout their books on a regular basis.

Example of Offsetting Positions

If the initial investment was a purchase, a sale is made to neutralize the position; to offset an initial sale, a purchase is made to neutralize the position.

With futures related to stocks, investors may use hedging to assume an opposing position to manage the risk associated with the futures contract. For example, if you wanted to offset a long position in a stock, you could short sell an identical number of shares.