What is the 'Bell Curve'
The bell curve is the most common type of distribution for a variable, and due to this fact, it is known as a normal distribution. The term "bell curve" comes from the fact that the graph used to depict a normal distribution consists of a bellshaped line. The highest point on the curve, or the top of the bell, represents the most probable event in a series of data, while all other possible occurrences are equally distributed around the most probable event, creating a downwardsloping line on each side of the peak.
BREAKING DOWN 'Bell Curve'
Bell curve is a general term that's used to describe a graphical depiction of a normal probability distribution. The normal probability distribution's underlying standard deviations from the median, or from the highest point on the curve, is what gives it the shape of a curved bell. A standard deviation is a measurement used to quantify the variability of data dispersion in a set of values. The mean is the average of all data points in the data set or sequence.
Standard deviations are calculated after the mean is calculated and represent a percentage of the total data collected. For example, if a series of 100 test scores are collected and used in a normal probability distribution, 68% of the 100 test scores should fall within one standard deviation above or below the mean. Moving two standard deviations away from the mean should include 95% of the 100 test scores collected, and moving three standard deviations away from the mean should represent 99.7% of the 100 test scores. Any test scores that are extreme outliers, such as a score of 100 or 0, would be considered longtail data points and lie outside of the three standard deviation range.
Using Data Distributions in Finance
Financial analysts and investors often use a normal probability distribution when analyzing the returns of a security or of overall market sensitivity. Standard deviations that depict the returns of a security are known in the finance world as volatility. For example, stocks that display a bell curve are normally blue chip stocks and have lower and predictable volatility. Investors use the normal probability distribution of a stock's past returns to make assumptions regarding its expected future returns.
However, stocks and other securities sometimes display nonnormal distributions, meaning that they do not look like a bell curve. Nonnormal distributions have fatter tails than a normal probability distribution. If the fatter tail is skewed negative, it's a signal to investors that there is a greater probability of negative returns and vice versa. Positively skewed fat tails can be a sign of abnormal future returns.

Normal Distribution
A probability distribution that plots all of its values in a ... 
Symmetrical Distribution
A situation in which the values of variables occur at regular ... 
Probability Distribution
A statistical function that describes all the possible values ... 
Tail Risk
A form of portfolio risk that arises when the possibility that ... 
Normal Yield Curve
A yield curve in which shortterm debt instruments have a lower ... 
Asymmetrical Distribution
A situation in which the values of variables occur at irregular ...

Markets
What is a Bell Curve?
The bell curve is the most common type of graphed data distribution. 
ETFs & Mutual Funds
Stock Market Risk: Wagging The Tails
The bell curve is an excellent way to evaluate stock market risk over the long term. 
Trading
Trading With Gaussian Models Of Statistics
The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications. 
Investing
What a Normal Distribution Means
Normal distribution describes a symmetrical data distribution, where most of the results lie near the mean. 
Investing
The Linear Regression Of Time and Price
This investment strategy can help investors be successful by identifying price trends while eliminating human bias. 
Managing Wealth
Using Normal Distribution Formula To Optimize Your Portfolio
Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk. 
Trading
What's Skewness?
Skewness describes how a data distribution leans. 
Investing
Find The Right Fit With Probability Distributions
Discover a few of the most popular probability distributions and how to calculate them. 
Markets
Explaining the Empirical Rule
The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution. 
Managing Wealth
The Uses And Limits Of Volatility
Check out how the assumptions of theoretical risk models compare to actual market performance.

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