Normal Distribution

AAA

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 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.

RELATED TERMS
  1. Leptokurtic

    A statistical distribution where the points along the X-axis ...
  2. Platykurtic

    A type of statistical distribution where the points along the ...
  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. Covariance

    A measure of the degree to which returns on two risky assets ...
  6. Kurtosis

    A statistical measure used to describe the distribution of observed ...
Related Articles
  1. Markets

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  2. Forex Education

    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. Active Trading Fundamentals

    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".
  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

    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. Fundamental Analysis

    Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.
  7. Mutual Funds & ETFs

    Stock Market Risk: Wagging The Tails

    The bell curve is an excellent way to evaluate stock market risk over the long term.
  8. Trading Strategies

    How can retirees protect their wealth in a bear market?

    Look at some helpful hints about how to protect your retirement nest egg when the stock market is underperforming or the economy is in recession.
  9. Economics

    What's the relationship between r squared and beta?

    Learn about the relationship between R-squared and Beta. Explore how the concepts are related and often used in conjunction with portfolio Alpha.
  10. Economics

    What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine the criticism of its accuracy.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center