Central Limit Theorem - CLT
Definition of 'Central Limit Theorem - CLT'A statistical theory that states that given a sufficiently large sample size from a population with a finite level of variance, the mean of all samples from the same population will be approximately equal to the mean of the population. Furthermore, all of the samples will follow an approximate normal distribution pattern, with all variances being approximately equal to the variance of the population divided by each sample's size. |
|
Investopedia explains 'Central Limit Theorem - CLT'This statistical theory is very useful when examining returns for a given stock or index because it simplifies many analysis procedures. An appropriate sample size depends on the data available, but generally speaking, having a sample size of at least 50 observations is sufficient. Due to the relative ease of generating financial data, it is often easy to produce much larger sample sizes. |
Related Definitions
Articles Of Interest
-
Find The Right Fit With Probability Distributions
Discover a few of the most popular probability distributions and how to calculate them. -
5 Ways To Measure Mutual Fund Risk
These statistical measurements highlight how to mitigate risk and increase rewards. -
An Introduction To Value at Risk (VAR)
Volatility is not the only way to measure risk. Learn about the "new science of risk management". -
Monte Carlo Simulation With GBM
Learn to predict future events through a series of random trials. -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
Top 4 Most Scandalous Insider Trading Debacles
Here we look at some of the landmark incidents of insider trading. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
Regression Basics For Business Analysis
This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how. -
The Copper King: An Empire Built On Manipulation
Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders. -
7 Controversial Investing Theories
We take a closer look at the theories that attempt to explain and influence the market.
Free Annual Reports