DEFINITION of 'ThreeSigma Limits'
A statistical calculation that refers to data within three standard deviations from a mean. Threesigma limits (3sigma limits) are used to set the upper and lower control limits in statistical quality control charts. Control charts are used to establish limits for a manufacturing or business process that is in a state of statistical control.
Control charts are based on the theory that even in perfectly designed processes, a certain amount of variability in output measurements is inherent. Variations in process quality due to random causes are said to be incontrol; outofcontrol processes include both random and special causes of variation. Control charts are intended to determine the presence of special causes.
Control charts are also known as Shewhart charts after Walter A. Shewhart, an American physicist, engineer and statistician (18911967).
INVESTOPEDIA EXPLAINS 'ThreeSigma Limits'
Shewart set 3 standard deviation (3sigma) limits as "a rational and economic guide to minimum economic loss." 3 sigma limits set a range for the process parameter at 0.27% control limits. A standard deviation is a statistical measurement of variability, showing how much variation exists from a statistical average. Low values indicate that the data points fall close to the mean (average); high values indicate the date is widespread and not close to the mean.
Investors use standard deviation to gauge expected volatility  this is known as historical volatility.

Balanced ANOVA
A statistical test used to determine whether or not different ... 
Analysis Of Variances  ANOVA
An analysis of the variation between all of the variables used ... 
Statistics
A type of mathematical analysis involving the use of quantified ... 
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. ... 
Multiple Linear Regression  MLR
A statistical technique that uses several explanatory variables ... 
Coefficient Of Variation  CV
A statistical measure of the dispersion of data points in a data ...

Markets
Using Historical Volatility To Gauge Future Risk
Use these calculations to uncover the risk involved in your investments. 
Markets
The Uses And Limits Of Volatility
Check out how the assumptions of theoretical risk models compare to actual market performance. 
Investing
Tips For Investors In Volatile Markets
Find out what to look out for when trading during market instability. 
Bonds & Fixed Income
Find The Highest Returns With The Sharpe Ratio
Learn how to follow the efficient frontier to increase your chances of successful investing. 
Mutual Funds & ETFs
Understanding Volatility Measurements
How do you choose a fund with an optimal riskreward combination? We teach you about standard deviation, beta and more! 
Fundamental Analysis
What is a Null Hypothesis?
In statistics, a null hypothesis is assumed true until proven otherwise. 
Investing
How to Use Stratified Random Sampling
Stratified random sampling is a technique best used with a sample population easily broken into distinct subgroups. Samples are then taken from each subgroup based on the ratio of the subgroup’s ... 
Fundamental Analysis
Lognormal and Normal Distribution
When and why do you use lognormal distribution or normal distribution for analyzing securities? Lognormal for stocks, normal for portfolio returns. 
Investing Basics
Using Normal Distribution Formula To Optimize Your Portfolio
Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk. 
Technical Indicators
The Normal Distribution Table, Explained
The normal distribution formula is based on two simple parameters  mean and standard deviation