Categorical Variable

In the realm of data analysis, categorical variables play a vital role in representing non-numeric data. To utilize these variables effectively it is essential to convert them into numerical form.

In the realm of data analysis and machine learning, categorical variables play a vital role in representing non-numeric data, such as gender, color, or country of origin. To utilize these variables effectively in statistical models and algorithms, it is essential to convert them into numerical form through a process called encoding.

Common types of Encoding

  1. One-Hot Encoding: One-hot encoding is one of the most popular methods for handling categorical variables. In this technique, each category is transformed into a binary vector, with a "1" representing the presence of a category and "0" indicating absence. One-hot encoding is simple, intuitive, and particularly useful for nominal categorical variables (categories without an inherent order).


  • Preserves distinct categories effectively.

  • Suitable for nominal variables.

  • Intuitive representation.


  • Increases dimensionality for high-cardinality variables.

  • Requires additional memory and computational resources.

  1. Ordinal Encoding: Ordinal encoding is used for ordinal categorical variables where the categories have a specific order or rank. In this method, the categories are assigned integer values based on their order. While this approach preserves the ordinal relationship between categories, it assumes a linear relationship, which might not always be appropriate for all datasets.


  • Preserves ordinal relationship between categories.

  • Simple to implement.


  • Assumes a linear relationship that might not hold in all cases.

  1. Label Encoding: Label encoding is a straightforward technique where each category is assigned a unique integer label. It is commonly used for binary categorical variables or when working with ordinal variables where a linear relationship can be assumed. However, this method may introduce unintended ordinal relationships when used inappropriately.


  • Simple and quick to apply.

  • Suitable for binary and ordinal variables.


  • Introduces artificial ordinal relationships.

  • Not suitable for nominal variables.

  1. Binary Encoding: Binary encoding is a compromise between one-hot encoding and label encoding. In this method, each category is represented by a binary code, which reduces dimensionality compared to one-hot encoding while still capturing distinct categories.


  • Reduces dimensionality compared to one-hot encoding.

  • Preserves distinct categories effectively.


  • May introduce artificial relationships if not used carefully.

5. Hash Encoder: Just like one-hot encoding, the Hash encoder represents categorical features using the new dimensions. Here, the user can fix the number of dimensions after transformation using n_component argument. Here is what I mean – A feature with 5 categories can be represented using N new features similarly, a feature with 100 categories can also be transformed using N new features. Doesn’t this sound amazing?

By default, the Hashing encoder uses the md5 hashing algorithm but a user can pass any algorithm of his choice. Since Hashing transforms the data in lesser dimensions, it may lead to loss of information. Another issue faced by hashing encoder is the collision. Since here, a large number of features are depicted into lesser dimensions, hence multiple values can be represented by the same hash value, this is known as a collision.

Moreover, hashing encoders have been very successful in some Kaggle competitions. It is great to try if the dataset has high cardinality features.

Encoding categorical variables is a crucial step in data preprocessing for effective data analysis and machine learning. One-hot encoding, ordinal encoding, label encoding, and binary encoding each have their pros and cons, and the choice of method depends on the nature of the categorical data and the specific requirements of the analysis or model. Data scientists and machine learning practitioners must carefully consider these factors when selecting the appropriate encoding method to ensure accurate and reliable results in their applications.

Last updated