Two-Tailed Test

What is a 'Two-Tailed Test'

A two-tailed test is a statistical test in which the critical area of a distribution is two sided and tests whether a sample is either greater than or less than a certain range of values. If the sample that is being tested falls into either of the critical areas, the alternative hypothesis will be accepted instead of the null hypothesis. The two-tailed test gets its name from testing the area under both of the tails (sides) of a normal distribution, although the test can be used in other non-normal distributions.

BREAKING DOWN 'Two-Tailed Test'

An example of when one would want to use a two-tailed test is at a candy production/packaging plant. Let's say the candy plant wants to make sure that the number of candies per bag is around 50. The factory is willing to accept between 45 and 55 candies per bag. It would be too costly to have someone check every bag, so the factory selects random samples of the bags, and tests whether the average number of candies exceeds 55 or is less than 45 with whatever level of significance it chooses.

RELATED TERMS
  1. One-Tailed Test

    A statistical test in which the critical area of a distribution ...
  2. Hypothesis Testing

    A process by which an analyst tests a statistical hypothesis. ...
  3. Alpha Risk

    The risk in a statistical test that a null hypothesis will be ...
  4. Beta Risk

    The probability that a false null hypothesis will be accepted ...
  5. Null Hypothesis

    A type of hypothesis used in statistics that proposes that no ...
  6. Z-Test

    A statistical test used to determine whether two population means ...
Related Articles
  1. Trading

    Hypothesis Testing in Finance: Concept & Examples

    When you're indecisive about an investment, the best way to keep a cool head might be test various hypotheses using the most relevant statistics.
  2. Investing

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  3. Investing

    How Statistical Significance is Determined

    If something is statistically significant, it’s unlikely that it happened by chance.
  4. Markets

    How Does Sampling Work?

    Sampling is a term used in statistics that describes methods of selecting a pre-defined representative number of data from a larger data population.
  5. Markets

    What is a Representative Sample?

    In statistics, a representative sample accurately represents the make-up of various subgroups in an entire data pool.
  6. Trading

    What's a T-Test?

    T-Test is a term from statistics that allows for the comparison of two data populations and their means. The test is used to see if the two sets of data are significantly different from one another. ...
  7. Investing

    Explaining Standard Error

    Standard error is a statistical term that measures the accuracy with which a sample represents a population.
  8. Investing

    Value Investing: Conclusion

    Value investing is like buying Easter candy the day after Easter. The candy still has the same intrinsic value – it's still sugary, delicious and essentially as fresh as it was in the days ...
  9. Investing

    Wine And Chocolate: A Sweet Deal For Investors

    Adding candy and liquor stocks to your portfolio is a great way to indulge in these holiday staples.
  10. Markets

    Target Replaces Checkout Candy With Healthy Snacks (CVS, TGT)

    Target (NYSE: TGT) wants its customers and its employees to get a whole lot healthier. The company has decided to replace the usual mix of candy and gum offered in its checkout lanes with granola ...
RELATED FAQS
  1. What does a strong null hypothesis mean?

    Find out what null hypothesis is and why it is important to the scientific method. See how statisticians and economists use ... Read Answer >>
  2. What is the relationship between confidence inferrals and a null hypothesis?

    Learn about the relationship between confidence intervals and the null hypothesis in scientific research and empirical experimentation. Read Answer >>
  3. What are some common financial sampling methods?

    Read about the differences between various common financial sampling methods for financial analysts, statisticians, marketers ... Read Answer >>
  4. How can a representative sample lead to sampling bias?

    Learn how using representative samples alone is not enough to make sampling bias negligible and why elements such as randomization ... Read Answer >>
  5. What's the difference between a representative sample and a random sample?

    Explore the differences between representative samples and random samples, and discover how they are often used in tandem ... Read Answer >>
  6. What are the best selection methods for creating a simple random sample?

    Discover some of the methods that researchers and pollsters utilize to select a simple random sample from a population group ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center