Empirical Rule

AAA

DEFINITION of 'Empirical Rule'

A statistical rule stating that for a normal distribution, almost all data will fall within three standard deviations of the mean. Broken down, the empirical rule shows that 68% will fall within the first standard deviation, 95% within the first two standard deviations, and 99.7% will fall within the first three standard deviations of the mean.

Also referred to as the Three Sigma Rule, or the 68-95-99.7 Rule.

INVESTOPEDIA EXPLAINS 'Empirical Rule'

The Empirical Rule is most often used in statistics for forecasting final outcomes. After a standard deviation is calculated, and before exact data can be collected, this rule can be used as a rough estimate as to the outcome of the impending data. This probability can be used in the meantime as gathering appropriate data may be time consuming, or even impossible to obtain.

RELATED TERMS
  1. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  2. Empirical Probability

    A form of probability that is based on some event occurring, ...
  3. Skewness

    Describe asymmetry from the normal distribution in a set of statistical ...
  4. Mean

    The simple mathematical average of a set of two or more numbers. ...
  5. Descriptive Statistics

    A set of brief descriptive coefficients that summarizes a given ...
  6. Confidence Interval

    A term used in inferential statistics that measures the probability ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  2. Markets

    Get A Richer Picture With The Penman-Nissim Framework

    Probability trends and profitability analysis are clearer when using this framework.
  3. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  4. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  5. Fundamental Analysis

    Scenario Analysis Provides Glimpse Of Portfolio Potential

    This statistical method estimates how far a stock might fall in a worst-case scenario.
  6. Investing

    How to Use Stratified Random Sampling

    Stratified random sampling is a technique best used with a sample population easily broken into distinct subgroups. Samples are then taken from each subgroup based on the ratio of the subgroup’s ...
  7. Fundamental Analysis

    Lognormal and Normal Distribution

    When and why do you use lognormal distribution or normal distribution for analyzing securities? Lognormal for stocks, normal for portfolio returns.
  8. Investing Basics

    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.
  9. Technical Indicators

    The Normal Distribution Table, Explained

    The normal distribution formula is based on two simple parameters - mean and standard deviation
  10. Economics

    Can Investors Trust Official Statistics?

    The official statistics in some countries need to be taken with a grain of salt. Find out why you should be skeptical.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center