Confidence Interval

DEFINITION of 'Confidence Interval'

A term used in inferential statistics that measures the probability that a population parameter will fall between two set values. The confidence interval can take any number of probabilities, with the most common being 95% or 99%.

BREAKING DOWN 'Confidence Interval'

In other words, a confidence interval is the probability that a value will fall between an upper and lower bound of a probability distribution. For example, given a 99% confidence interval, stock XYZ's return will fall between -6.7% and +8.3% over the next year. In layman's terms, we are 99% confident that the return's of holding XYZ stock over the next year will fall between -6.7% and +8.3%.

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