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. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  3. Type I Error

    A type of error that occurs when a null hypothesis is rejected ...
  4. Type II Error

    A statistical term used within the context of hypothesis testing ...
  5. Hypothesis Testing

    A process by which an analyst tests a statistical hypothesis. ...
  6. Null Hypothesis

    A type of hypothesis used in statistics that proposes that no ...
Related Articles
  1. Investing

    How to Prepare for the Low Return Environment Ahead

    Learn about the big takeaway from this week’s chart: Investors aiming for higher returns over the next five years should be prepared to stomach more volatility.
  2. Active Trading Fundamentals

    SandRidge's 3 Key Financial Ratios (SDOC)

    Learn more about SandRidge Energy, Inc., a history of the company's performance and financial stability through key financial ratios and its future outlook.
  3. Economics

    A Statistic About the U.S. Economy that May Surprise You

    Learn why many commentators seem to be pessimistically focused on the U.S. economy’s weak wage growth and manufacturing sector trouble.
  4. Economics

    The Current Probability of President Donald Trump

    Predict the current odds of a Donald Trump presidency, and understand the factors that have kept him on top and the looming challenges he faces.
  5. Fundamental Analysis

    Calculating the Coefficient Of Variation (CV)

    Coefficient of variation measures the dispersion of data points around the mean, a statistical average.
  6. Markets

    The Market Chart You Need to See This Week

    This week’s chart helps show why current low levels of stock market volatility look unsustainable and why now is a good time to prepare portfolios for a rockier road ahead.
  7. Economics

    Explaining Pareto Efficiency

    Pareto efficiency is an economic state where resources are allocated in the most efficient manner.
  8. Fundamental Analysis

    Intro to Stationary and Non-Stationary Processes

    Refining data points is the key to applying financial series time data to stock analysis.
  9. Economics

    What is a Bell Curve?

    The bell curve is the most common type of graphed data distribution.
  10. Economics

    What Big Data Can Tell us about the Economy

    Given recent market turbulence, it’s no wonder that investors are wondering whether the economy is heading in the right direction.
RELATED FAQS
  1. Do plane tickets get cheaper closer to the date of departure?

    Read about when to buy flights. See how statistics can predict optimal pricing. Read about price volatility over time. Learn ... Read Answer >>
  2. Is Colombia an emerging market economy?

    Learn the definition of an emerging market economy, and understand how Colombia, while not yet developed, meets the standards ... Read Answer >>
  3. What assumptions are made when conducting a t-test?

    Learn what a t-test is, and discover the five standard assumptions that are made regarding the validity of sampling and data ... Read Answer >>
  4. What are some of the more common types of regressions investors can use?

    Learn about the most common types of regressions investors use to model asset prices including linear regressions and multiple ... Read Answer >>
  5. What types of assets lower portfolio variance?

    Learn what type of assets reduce portfolio variance and how modern portfolio theory uses correlation coefficients. Read Answer >>
  6. When is it better to use systematic over simple random sampling?

    Learn when systematic sampling is better than simple random sampling, such as in the absence of data patterns and when there ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center