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).
BREAKING DOWN '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 ... 
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. ... 
Statistics
A type of mathematical analysis involving the use of quantified ... 
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! 
Investing
What is Descriptive Statistics?
Descriptive statistics is the term applied to meaningful data analysis. 
Fundamental Analysis
Create a Monte Carlo Simulation Using Excel
How to apply the Monte Carlo Simulation principles to a game of dice using Microsoft Excel. 
Mutual Funds & ETFs
Top 4 Inverse Equities ETFs
Explore analysis of some of the most popular inverse and leveragedinverse ETFs that track equity indexes, and learn about the suitability of these ETFs. 
Forex Fundamentals
How Foreign Exchange Affects Mergers and Acquisitions Deals
Learn how foreign exchange rates can impact the flows of international merger and acquisition (M&A) transactions, and understand how deals can impact exchange rates. 
Mutual Funds & ETFs
Finding Lower Risk, Higher Return Mutual Funds
Discover detailed analysis of lowerrisk, higherreturn balanced mutual funds, and learn about the characteristics of this type of mutual fund.

Is Colombia an emerging market economy?
Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >> 
What assumptions are made when conducting a ttest?
The common assumptions made when doing a ttest include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >> 
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 >> 
What types of assets lower portfolio variance?
Assets that have a negative correlation with each other reduce portfolio variance. Variance is one measure of the volatility ... Read Full Answer >> 
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 >> 
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 >>