Normal Distribution in Finance Explained

Normal distribution in finance helps explain stock returns, probability, and investment risk through the familiar bell curve. You’ll learn how mean and standard deviation shape the curve, how the 68-95-99.7 rule works, and how z-scores measure unusual returns. I walk through 51 years of S&P 500 daily returns and calculate what a three-standard-deviation loss looks like with actual numbers. I also show why market returns have fat tails, compare predicted extreme losses with the historical record, and explain where the normal model fails on Black Monday. Whether you’re studying finance or trying to understand market risk, this video gives you a practical foundation for using the normal distribution.

Chapters
0:00 – Where the bell curve breaks
0:28 – Daily returns as a histogram
1:34 – Mean and standard deviation
2:31 – The 68-95-99.7 rule and z-scores
3:56 – Why bell curves show up
4:41 – Fat tails and Black Monday

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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Ryan O’Connell Finance LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.