The Average Nearest Neighbor tool measures the distance between each feature centroid and its nearest neighbor's centroid location. It then averages all these nearest neighbor distances. If the average distance is less than the average for a hypothetical random distribution, the distribution of the features being analyzed is considered clustered. If the average distance is greater than a hypothetical random distribution, the features are considered dispersed. The average nearest neighbor ratio is calculated as the observed average distance divided by the expected average distance (with expected average distance being based on a hypothetical random distribution with the same number of features covering the same total area).