What is 'Skewness'
Skewness is a term in statistics used to describes 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 and negative, or to the right and positive of the data average. A dataset that shows this characteristic differs from a normal bell curve.
BREAKING DOWN 'Skewness'
When data is skewed to the right, the mean and the median of the set are both greater than the mode. Further, the mean is greater than the median in most cases. Conversely, when data is skewed to the left, the mean and the median are both less than the mode. In addition, as a rule, the mean is less than the median.Skewness is measured by the use of Pearson’s first coefficient of skewness. This measure subtracts the median from the mode and then divides the difference by the standard deviation. Peterson's second law is also sometimes used, where the mode is subtracted from the median, multiplied by three and then divided by the standard deviation.
Skewness in Business and Finance
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 understanding which way data is skewed, an investor can better estimate whether a given 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.
An Example of Skewness
Skewness is used by investors every day. Even casual equity investors look at the chart of a stock's price and try to make investments in companies that have a positive skew. The idea is to invest in a company with a long tail, which in the equity markets is a stock price that is greatly skewed positively, such as Netflix or Microsoft.
However, when skewness is combined with poor judgement, it can have adverse effects. For example, prior to the 2008 financial crisis, the market was booming and showing positive skewness. Many investors bought into the market at its high point in 2007, only to see it massively decline in 2008 and 2009. Then, noticing a negative skew, market participants sold at the bottom of the market, realizing huge losses.

SKEW Index
The SKEW index measures perceived volatility in financial markets. ... 
Normal Distribution
A probability distribution that plots all of its values in a ... 
Symmetrical Distribution
A situation in which the values of variables occur at regular ... 
Asymmetrical Distribution
Asymmetrical distribution is where the values of variables occur ... 
Stutzer Index
A performance measure that rewards portfolios with a lower probability ... 
Tail Risk
A form of portfolio risk that arises when the possibility that ...

Investing
What's Skewness?
Skewness describes how a data distribution leans. 
Trading
Ratio Writing: A HighVolatility Options Strategy
Selling a greater number of options than you buy profits from a decline back to average levels of implied volatility. 
Investing
3 Ways To Evaluate the Performance of Alternatives
Learn about three ways to measure the performance of alternative investments. See how the commonly used Sharpe ratio has drawbacks in measuring volatility. 
Investing
A Simplified Approach To Calculating Volatility
Though most investors use standard deviation to determine volatility, there's an easier and more accurate way of doing it: the historical method. 
Investing
Why The Market Appears To Be Bullish On AMD
Advanced Micro Devices stock is poised to climb on back of its blowout 2Q earnings and solid guidance. 
Investing
Find The Right Fit With Probability Distributions
Discover a few of the most popular probability distributions and how to calculate them. 
Trading
How Elite Traders Learn From Their Mistakes
What distinguishes a good trader from a mediocre one is his or her ability to learn from mistakes and use the experience to avoid making the same errors again. 
Financial Advisor
How to Tell if You're Investing Too Conservatively
Investing is a balance between growing and preserving your money. It's understandable to want to be conservative, but what about being too conservative? 
Investing
How the Sharpe Ratio Can Oversimplify Risk
When it comes to hedge funds, this measure is not reliable on its own. 
Personal Finance
Which Jobs Get You the Biggest Raises?
Which are the jobs with the biggest raises? And how high are their salaries?

What is the relationship between implied volatility and the volatility skew?
Learn what the relationship is between implied volatility and the volatility skew, and see how implied volatility impacts ... Read Answer >> 
Profit margin for food and beverage sector
Learn which profit margin is common for a company in the food and beverage sector based on different statistical measures ... Read Answer >> 
How does implied volatility impact the pricing of options?
Learn about two specific volatility types associated with options and how implied volatility can impact the pricing of options. Read Answer >> 
Which countries run the largest budget deficits?
Discover the countries with the largest budget deficits and what it means. Deficits are influenced by the economy and also ... Read Answer >> 
Why does operating profit exclude interest revenues and expenses?
Understand the purpose of examining a company's operating profit margin and why interest revenues and expenses are not included ... Read Answer >>