Z-score

Definition

A z-score measures how many standard deviations a data point is from the mean. It helps determine the position of a value within a distribution.

5 Must Know Facts For Your Next Test

1. A z-score can be positive or negative, indicating whether the data point is above or below the mean.
2. Z-scores help to compare data points from different distributions.
3. The formula for calculating a z-score is (X - μ) / σ, where X is the value, μ is the mean, and σ is the standard deviation.
4. In finance, z-scores are used to assess risk and performance relative to benchmarks.
5. A z-score of 0 indicates that the data point is exactly at the mean.

Review Questions

• What does a positive z-score indicate?
• How do you calculate a z-score?
• Why are z-scores useful in finance?

Related terms

StandardDeviation: A measure of the amount of variation or dispersion in a set of values.

Mean:

The average of a set of numbers.

Distribution:

The way in which values are spread over possible outcomes.