A histogram can be used to visually interrogate the distribution of a security’s returns.
These returns typically resemble a bell-shaped curve when viewed as a histogram.
A random variable that follows this type of bell-shaped distribution is said to follow a normal distribution.
There are certain characteristics of a normal distribution that can be helpful when investigating the returns of stocks, given an understanding of the assumptions involved in such analysis. Continue reading → Risk Management 101 (Part 3)
