Data Science

What Is Anomaly Detection? Types, Algorithm and Applications

Published: 7th August, 2023

Harshini Bhat

Data Science Consultant at almaBetter

Discover the power of anomaly detection in data to identify outliers and unusual patterns. Enhance security, prevent fraud, and make informed data decisions.

Picture this - a financial institution sifting through millions of credit card transactions, searching for any signs of fraudulent activity. Or a cybersecurity team tirelessly monitoring network traffic, looking for the slightest hint of malicious behavior. Or even a healthcare system analyzing patient data to detect anomalies that could indicate life-threatening conditions. Anomaly detection is the Sherlock Holmes of data analysis, relentlessly seeking out outliers and unusual patterns that hide in plain sight.

But how does it work? What techniques and algorithms are employed to identify these data anomalies? Anomaly detection is a crucial technique used in Data Analysis and machine learning to identify outliers and unusual patterns in datasets. It plays a vital role in various fields, including finance, cybersecurity, healthcare, manufacturing, and more. By uncovering anomalies, analysts and decision-makers can gain valuable insights, detect potential fraud or errors, and make informed decisions to ensure the integrity and efficiency of systems and processes. Let us now see what happens in Anomaly detection, its meaning, Anomaly Detection Machine learning algorithms, and its use cases.

What is Anomaly Detection?

Anomaly detection  involves the identification of data points or patterns that deviate significantly from the expected or normal behavior of a given system or dataset. These anomalies may represent unusual events, errors, outliers, or suspicious activities that are not consistent with the majority of the data. Anomalies can occur due to various factors, such as errors in data collection, equipment malfunction, fraudulent activities, or rare events that require attention and investigation.

Why is Anomaly Detection Important?

Let us see what happens in anomaly detection and is essential for several reasons. Firstly, anomalies often indicate critical events or issues that require immediate attention. By identifying these outliers, anomaly detection enables timely intervention and resolution, thus preventing potential damage or losses. Secondly, it helps in maintaining the quality and reliability of systems and processes. By detecting anomalies in real-time or during data analysis, organizations can ensure that their operations are running smoothly and efficiently. Thirdly, anomaly detection plays a vital role in fraud detection and security. Unusual patterns in financial transactions, network traffic, or user behavior can be indicators of malicious activities, and anomaly detection techniques can help in the early detection and prevention of such threats.

Types of Anomaly Detection

Anomaly detection is the process of identifying outliers and unusual patterns in data. There are three main types of anomaly detection techniques: statistical anomaly detection, machine learning anomaly detection, and hybrid anomaly detection.

  1. Statistical Anomaly Detection: Statistical-based methods rely on mathematical models and statistical properties of the data to identify anomalies. These techniques assume that anomalies deviate significantly from the expected statistical behavior of the majority of the data points. Here are a few common statistical anomaly detection methods:
    a. Z-score method: This method calculates the standard deviation of the data and identifies data points that fall beyond a certain threshold (typically, a predefined number of standard deviations away from the mean).
    b. Modified z-score method: Similar to the z-score method, this approach takes into account the median absolute deviation (MAD) instead of the standard deviation, making it more robust to outliers.
    c. Boxplot method: Boxplots represent the distribution of the data and identify outliers based on the interquartile range (IQR). Data points that fall below the lower whisker or above the upper whisker are considered anomalies.

Outlier Method

IQR Method

  1. Machine Learning Anomaly Detection: Machine learning-based techniques utilize algorithms and models to learn patterns and structures in the data, enabling the detection of anomalies based on deviations from these learned patterns. Machine learning methods can be categorized into supervised and unsupervised learning approaches:
    a. Supervised learning methods: These techniques require labeled data with both normal and anomalous instances for training. Algorithms such as Support Vector Machines (SVM) and Random Forests can be trained to classify new instances as either normal or anomalous based on the learned patterns from the training data.
    b. Unsupervised learning methods: Unsupervised learning does not require labeled data and focuses on identifying patterns and structures in the data without prior knowledge of anomalies. Clustering-based approaches group similar data points together, considering data points that fall outside of these clusters as anomalies. Autoencoders, a type of neural network, can also be used for anomaly detection by learning to reconstruct normal data and identifying instances that have a high reconstruction error.

Anomaly Detection Techniques

Anomaly Detection Techniques

  1. Hybrid Anomaly Detection: Hybrid anomaly detection techniques combine the strengths of both statistical and machine learning methods. These approaches leverage the statistical properties of the data along with machine learning algorithms to achieve more accurate and robust anomaly detection. For example, one approach could involve using statistical methods to preprocess the data and extract relevant features, followed by applying machine learning algorithms for anomaly detection on the transformed data.

Algorithms for Anomaly Detection

There are many Anomaly Detection algorithms, some of them are as follows:

Gaussian Mixture Models: Gaussian Mixture Models (GMMs) are probabilistic models that assume the data points in a given dataset are generated from a mixture of Gaussian distributions. Anomaly detection using GMMs involves fitting a GMM to the dataset and then estimating the likelihood of each data point belonging to the learned model. Points with significantly low likelihoods are considered anomalies. GMMs can capture complex patterns in data and are useful when anomalies deviate from the normal distribution.

Isolation Forest: The Isolation Forest algorithm is based on the concept of isolating anomalies. It constructs a random forest of decision trees and isolates anomalies by recursively partitioning the dataset until each instance is in its own leaf node. The idea is that anomalies can be isolated more quickly compared to normal instances, as they require fewer partitioning steps. The algorithm assigns an anomaly score to each data point, where lower scores indicate a higher likelihood of being an anomaly.

One-Class Support Vector Machines: One-Class Support Vector Machines (SVMs) are binary classifiers designed to identify anomalies in data. Unlike traditional SVMs used for classification, one-class SVMs are trained on only normal instances, assuming that anomalies are rare and do not conform to the normal data distribution. The algorithm maps the data into a high-dimensional feature space and finds a hyperplane that separates the normal instances from the origin. Points lying on the side of the hyperplane opposite to the origin are considered anomalies.

Local Outlier Factor: The Local Outlier Factor (LOF) algorithm measures the local deviation of a data point with respect to its neighbors. It identifies anomalies based on the density of the local neighborhood compared to surrounding neighborhoods. Points with significantly lower density are considered outliers. LOF calculates an anomaly score for each data point, where higher scores indicate a higher likelihood of being an anomaly. LOF is effective in detecting anomalies in datasets with varying density and is robust to the presence of noise.

These algorithms provide different approaches to anomaly detection, each with its own strengths and limitations. Choosing the most suitable algorithm depends on the characteristics of the data and the specific requirements of the application. By leveraging these algorithms, practitioners can effectively identify outliers and unusual patterns in data, enabling timely detection of anomalies in various domains.

applications of anomaly detection

Applications of Anomaly Detection

Applications of Anomaly Detection

Anomaly detection finds applications across various domains. Some of them are as follows


  • Detecting fraudulent transactions, credit card fraud, and money laundering.
  • Identifying unusual spending patterns and unauthorized access attempts.


  • Identifying network intrusions and malicious activities.
  • Detecting anomalies in system behavior or user actions.


  • Identifying anomalies in patient data, such as abnormal vital signs.
  • Aiding in early disease diagnosis and detection of adverse events

Predictive Maintenance:

  • Identifying anomalies in sensor data to predict equipment failures.
  • Optimizing maintenance schedules for improved efficiency.

Anomaly detection plays a crucial role in these domains by providing early detection, improved security measures, efficient resource allocation, and proactive decision-making.


To harness the full potential of anomaly detection, organizations  employ best practices such as preprocessing and data cleaning, feature selection and engineering, and choosing appropriate algorithms. The challenges involved, such as imbalanced datasets, high-dimensional data, and real-time detection requirements are to be considered. Anomaly detection empowers businesses to identify and address outliers and unusual patterns in their data, thereby enhancing security, improving decision-making, and optimizing operations across a range of industries. With continued research and implementation, anomaly detection will continue to drive innovation and provide valuable insights in the ever-evolving landscape of data analysis and machine learning.

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