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. Median

    The middle number in a sorted list of numbers. To determine the ...
  4. Coskewness

    A statistical measure that calculates the symmetry of a variable's ...
  5. Mode

    A statistical term that refers to the most frequently occurring ...
  6. Kurtosis

    A statistical measure used to describe the distribution of observed ...
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. Technical Indicators

    Why is the 200 Simple Moving Average (SMA) so common for traders and analysts?

    Learn about the 200 simple moving average (SMA), how it is utilized by traders and analysts, and why it is considered to represent major support or resistance.
  10. Trading Strategies

    How do I build a profitable strategy when spotting a Three White Soldiers pattern?

    Learn a simple trading strategy implemented based on the bullish market reversal signal given by the three white soldiers candlestick pattern.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. 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 ...
  4. 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 ...
  5. Weather Insurance

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

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