Bell Curve of Returns

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To be technical, the kinds of bell curves that we care about the most in statistics are actually called normal probability distributions. For what follows we’ll just assume the bell curves we’re talking about are normal probability distributions. Despite the name “bell curve,” these curves are not defined by their shape. Instead an intimidating looking formula is used as the formal definition for bell curves.

But we really don’t need to worry too much about the formula. The only two numbers that we care about in it are the mean and standard deviation. The bell curve for a given set of data has center located at the mean. This is where the highest point of the curve or “top of the bell“ is located. A data set‘s standard deviation determines how spread out our bell curve is. The larger the standard deviation, the more spread out the curve.