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.

VIDEO

Loading the player...
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. Confidence Interval

    A term used in inferential statistics that measures the probability ...
  6. Descriptive Statistics

    A set of brief descriptive coefficients that summarizes a given ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What are some of the more common types of regressions investors can use?

    The most common types of regression an investor can use are linear regressions and multiple linear regressions. Regressions ... Read Full Answer >>
  3. What types of assets produce negative portfolio variance?

    Assets that have a negative correlation with each other produce negative portfolio variance. Variance is one measure of the ... Read Full Answer >>
  4. When is it better to use systematic over simple random sampling?

    Under simple random sampling, a sample of items is chosen randomly from a population, and each item has an equal probability ... Read Full Answer >>
  5. What are some common financial sampling methods?

    There are two areas in finance where sampling is very important: hypothesis testing and auditing. The type of sampling methods ... Read Full Answer >>
  6. How can I measure portfolio variance?

    Portfolio variance measures the dispersion of returns of a portfolio. It is calculated using the standard deviation of each ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  2. Fundamental Analysis

    Find The Right Fit With Probability Distributions

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

    Get A Richer Picture With The Penman-Nissim Framework

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

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  5. 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".
  6. Fundamental Analysis

    Scenario Analysis Provides Glimpse Of Portfolio Potential

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

    Explaining the Liquidity Coverage Ratio

    The liquidity coverage ratio requires banks and other financial institutions to hold enough cash and liquid assets on hand to weather market stress.
  8. Fundamental Analysis

    Calculating Valuation

    Valuation is the process of determining what an asset is worth.
  9. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.
  10. Fundamental Analysis

    Understanding Qualitative Analysis

    Qualitative analysis is a general term describing the non-mathematical scrutiny used by investors and managers to make investment and business decisions.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!