Volatility Primer 5: Probabilities For Normally Distributed Assets

For an investment portfolio, we care about the probability the portfolio is above or below a desired value.

For the S&P 500, which is normally distributed, there is a 15.9% probability the monthly return will be lower than -3.4% (which is 0.94% - 4.38%, or one standard deviation below the mean). There also would be a 2.3% probability the monthly return would be lower than -7.8% (which is 0.94% - 2*(4.38%), or two standard deviations below the mean).

 

Disclosure:

The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

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