Skewness

AAA

DEFINITION of 'Skewness'

Describe asymmetry from the normal distribution in a set of statistical data. Skewness can come in the form of "negative skewness" or "positive skewness", depending on whether data points are skewed to the left (negative skew) or to the right (positive skew) of the data average.

INVESTOPEDIA EXPLAINS 'Skewness'

Skewness is extremely important to finance and investing. Most sets of data, including stock prices and asset returns, have either positive or negative skew rather than following the balanced normal distribution (which has a skewness of zero). By knowing which way data is skewed, one can better estimate whether a given (or future) data point will be more or less than the mean.

Most advanced economic analysis models study data for skewness and incorporate this into their calculations. Skewness risk is the risk that a model assumes a normal distribution of data when in fact data is skewed to the left or right of the mean.

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. Normal Distribution

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

    The middle number in a sorted list of numbers. To determine the ...
  5. Trimmed Mean

    A method of averaging that removes a small percentage of the ...
  6. Mode

    A statistical term that refers to the most frequently occurring ...
Related Articles
  1. Fundamental Analysis

    Quantitative Analysis Of Hedge Funds

    Hedge fund analysis requires more than just the metrics used to analyze mutual funds.
  2. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  3. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  4. Fundamental Analysis

    The Capital Asset Pricing Model: An Overview

    CAPM helps you determine what return you deserve for putting your money at risk.
  5. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  6. Active Trading Fundamentals

    How The Sharpe Ratio Can Oversimplify Risk

    When it comes to hedge funds, this measure is not reliable on its own.
  7. 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".
  8. Fundamental Analysis

    Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.
  9. Chart Advisor

    4 Bullish Flag Patterns You Should Trade Now

    Here are four stocks with flag patterns, highlighting the various ways to trade this chart pattern.
  10. Chart Advisor

    These Transportation Stocks Are at a Crossroads

    These shipping and railroad stocks are testing resistance. A break above signals an emerging uptrend; a break lower, a continuation of the downtrend.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center