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Standard Deviation Question
- Thread starter Dustin
- Start date
Dustin; I don't know whether this will help you or not but FWIW the rule of thumb is;
1 std. dev covers 68.3 % of all possible outcomes
2 std devs. cover 95.4% of all possible outcomes
3 std devs cover 99.7 % of all possible outcomes.
perhaps you can figure a way to use these relationships to get where you want to go.
1 std. dev covers 68.3 % of all possible outcomes
2 std devs. cover 95.4% of all possible outcomes
3 std devs cover 99.7 % of all possible outcomes.
perhaps you can figure a way to use these relationships to get where you want to go.
first you calculate what a standard deviation is for your sample. One standard deviation is 1x, 2 standard deviations is 2x. The area under the curve will be significantly different though.
Originally posted by Rigel
The standard deviation is a component of the Bell curve which is used to determine probabilities. It can be used to analyze any data.
It's not a component, it describes the Bell curve. Of course the results of operations assuming a normal distribution and assumptions as to the probability significance of certain standard deviation multiples will only hold if the data sample in question in fact conforms to a normal distribution.
The problem with financial markets in this respect is that they may fit a normal distribution pretty well for much of the time, but usually when it's most critical (like in a crash) the assumption will fail due to kurtosis and fat tails.
Originally posted by dlincke
The problem with financial markets in this respect is that they may fit a normal distribution pretty well for much of the time, but usually when it's most critical (like in a crash) the assumption will fail due to kurtosis and fat tails.
OK, so the market does exhibit a normal distribution with the exception of major market crashes? So one can expect most of the price action to be contained within 2 std deviations the majority of the time.