Random Variable

What is a 'Random Variable'

A random variable is a variable whose value is unknown or a function that assigns values to each of an experiment's outcomes. Random variables are often designated by letters and can be classified as discrete, which are variables that have specific values, or continuous, which are variables that can have any values within a continuous range.

BREAKING DOWN 'Random Variable'

Consider an experiment where a coin is tossed three times. If X represents the number of times that the coin comes up heads, then X is a discrete random variable that can only have the values 0,1,2,3 (from no heads in three successive coin tosses, to all heads). No other value is possible for X.


An example of a continuous random variable would be an experiment that involves measuring the amount of rainfall in a city over a year, or the average height of a random group of 25 people.




RELATED TERMS
  1. Sensitivity Analysis

    Sensitivity analysis is a technique used to determine how different ...
  2. Random Factor Analysis

    A statistical analysis performed to determine the origin of random ...
  3. Shadowing

    The process of creating values for variables that don't rely ...
  4. Variability

    The extent to which data points in a statistical distribution ...
  5. Variable Cost Ratio

    Variable costs expressed as a percentage of sales. The variable ...
  6. Log-Normal Distribution

    A statistical distribution of random variables which have a normally ...
Related Articles
  1. Professionals

    Common Probability Distributions

    CFA Level 1 - Common Probability Distributions - Basics
  2. Professionals

    Common Probability Distribution Calculations

    CFA Level 1 - Common Probability Distributions - Calculations
  3. Economics

    Understanding Regression

    Regression is a statistical analysis that attempts to predict the effect of one or more variables on another variable.
  4. Professionals

    Scenario / What-If Analysis

    We look at some ways that you can evaluate your project.
  5. Investing

    What's a Sensitivity Analysis?

    Sensitivity analysis is used in financial modeling to determine how one variable (the target variable) may be affected by changes in another variable (the input variable).
  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. Professionals

    Variable Contracts

    FINRA Series 6: Section 11 Variable Contracts
  8. Trading Systems & Software

    Trading Systems Coding: The Coding Process

    By Justin Kuepper Contact Justin By now you should have a design in hand as well as a basic idea of what the code looks like. In this section, we'll take a more in-depth look at how a program ...
  9. Investing News

    Stock and Flow Variables Explained: A Closer Look at Apple

    The difference between stock and flow variables is an essential concept in finance and economics. We illustrate with financial statements from Apple Inc.
  10. Fundamental Analysis

    Financial Markets: Random, Cyclical Or Both?

    Are the markets random or cyclical? It depends on who you ask. Here, we go over both sides of the argument.
RELATED FAQS
  1. What variables are most important when making a prediction through sensitivity analysis?

    Explore sensitivity analysis and how this method considers different variables to determine a course of action based on statistical ... Read Answer >>
  2. What is the difference between direct costs and variable costs?

    Learn about variable costs and direct costs, how direct costs and variable costs are classified and the differences between ... Read Answer >>
  3. What are the variables in variable costs?

    Learn about variable costs. Explore how and why these costs may fluctuate, as well as ways in which they may differ from ... Read Answer >>
  4. What is the "random walk theory" and what does it mean for investors?

    The random walk theory is the occurrence of an event determined by a series of random movements - in other words, events ... Read Answer >>
  5. How are variable annuities regulated?

    Discover the various rules that the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority ... Read Answer >>
  6. How liquid are variable annuities?

    Understand whether variable annuities are liquid. Learn more about the two types of variable annuities and which is more ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center