Random Variable

AAA

DEFINITION of 'Random Variable'

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.

INVESTOPEDIA EXPLAINS '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. Discrete Distribution

    The statistical or probabilistic properties of observable (either ...
  2. Nonparametric Statistics

    A statistical method wherein the data is not required to fit ...
  3. Normal Distribution

    A probability distribution that plots all of its values in a ...
  4. Probability Distribution

    A statistical function that describes all the possible values ...
  5. Scenario Analysis

    The process of estimating the expected value of a portfolio after ...
  6. Financial Singlularity

    A financial singularity is the point at which investment decisions ...
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 is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Related Articles
  1. Investing Basics

    What Are The Odds Of Scoring A Winning Trade?

    Just because you're on a winning streak doesn't mean you're a skilled trader. Find out why.
  2. 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.
  3. 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.
  4. Trading Strategies

    What Your Trading Charts Aren't Telling You

    You may be missing some key statistics when following charts in the market.
  5. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  6. Economics

    What are Barriers to Entry?

    A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 500 Trust

    Find out more about the SPDR S&P 500 ETF Trust, the characteristics of the exchange traded fund and the suitability of investing in the fund.
  8. Mutual Funds & ETFs

    ETF Analysis: Energy Select Sector SPDR

    Find out more about the Energy Select Sector SPDR Fund, the top holdings of this exchange-traded fund and the characteristics of the fund.
  9. Investing News

    The Financial Singularity Will Destroy Your Return

    Given the current and future growth of financial technology, many believe algorithms will soon define what drives market outcomes. With a wealth of big data, algorithms would be able to create ...
  10. 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.

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

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

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

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

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

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