Normal Distribution

Filed Under » ,
Dictionary Says

Definition of 'Normal Distribution'

A probability distribution that plots all of its values in a symmetrical fashion and most of the results are situated around the probability's mean. Values are equally likely to plot either above or below the mean. Grouping takes place at values that are close to the mean and then tails off symmetrically away from the mean.

Also known as a "Gaussian distribution" or "bell curve".
Investopedia Says

Investopedia explains 'Normal Distribution'

The normal distribution is the most common type of distribution, and is often found in stock market analysis. Given enough observations within a sample size, it is reasonable to make the assumption that returns follow a normally distributed pattern, but this assumption can be disproved.

As with any distribution, the distributions mean, skewness and kurtosis coefficients should be calculated in order to determine the type of distribution you may be dealing with.

Articles Of Interest

  1. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  2. 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.
  3. An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  4. How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  5. A Disaster-Protection Plan For Your Portfolio

    If you can't predict the future, you'll need to plan ahead to protect your assets from the impact of major world events.
  6. Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.
  7. Stock Market Risk: Wagging The Tails

    The bell curve is an excellent way to evaluate stock market risk over the long term.
  8. Weighted Average Cost Of Capital (WACC)

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality
  9. Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.
  10. Taking Shots At CAPM

    Find out why many investors think the capital asset pricing model is full of holes.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Yield Elbow

    The point on the yield curve indicating the year in which the economy's highest interest rates occur. The yield elbow is the peak of the yield curve, signifying where the highest interest rates occurred.
  2. Xenocurrency

    A currency that trades in markets outside of its domestic borders.
  3. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.
  4. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.
  5. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.
  6. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=c90bb42ca25ac5b5b3a90f2f4d08b278