101 Concepts for the Level I Exam

Concept 8: Symmetry and Skewness in Return Distributions


A distribution is said to be symmetrical when the distribution on either side of the mean is a mirror image of the other. In a symmetrical distribution, mean = median = mode.

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If a distribution is non-symmetrical, it is said to be skewed. Skewness can be negative or positive.

positively skewed distribution has a long tail on the right side, which means that there will be frequent small losses and few large gains.  Here the mean > median >mode. The extreme values affect the mean the most which is pulled to the right. They affect the mode the least.

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negatively skewed distribution has a long tail on the left side, which means that there will be frequent small gains and few large losses. Here the mean < median < mode. The extreme values affect the mean the most which is pulled to the left. They affect the mode the least.

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