Investopedia

Continue to Site »

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. 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. 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. 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. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  9. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  10. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
comments powered by Disqus
Marketplace
Hot Definitions

  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center