Central Limit Theorem (CLT)
📈 Investing
Quick Definition
The Central Limit Theorem (CLT) is a statistical principle that states that the distribution of sample means approximates a normal distribution as the sample size becomes larger, regardless of the population's distribution.
Formula
\bar{X} \approx N(\mu, \frac{\sigma^2}{n})Examples
- 1In investment risk assessment, CLT helps in determining the probability distribution of asset returns over time.
- 2In banking, CLT is used to model the average number of transactions per customer to optimize service.
- 3In insurance, actuaries use CLT to predict claim amounts and set premiums accordingly.
- 4In market research, CLT assists in predicting consumer behavior by analyzing sample data from surveys.
Tags
statisticsnormal-distributionsample-sizerisk-managementdata-analysis
Related Terms
Other terms you might find helpful
Normal Distribution
Normal distribution, often referred to as the bell curve, is a probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean.
Standard Deviation
Standard deviation is a statistical measure that quantifies the amount of variation or dispersion of a set of values.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/18/2025