"Fred Smith" wrote:
Given an average return of 3.4% and a standard deviation
of 7.4%, what's the probability of losing money (ie,
return less than zero)?

You are asking "what is the probability that the cumulative distribution is
less than zero?".

The formulation depends on the distribution. Assuming a normal
distribution:

=NORMDIST(0, 3.4%, 7.4%, 1)

Note that for securities, the returns are assumed to be log normal. That
is, the distribution of the log of the returns is assumed to be normal, not
the distribution of the returns themselves. So 3.4% and 7.4% should be the
log mean and log std dev.

(It is debatable whether we should the arithmetic mean or the geometric mean
and corresponding std dev. Most experts tend to use the geometric mean,
which reflects the mean of the time series.)

But while the log normal assumption may be valid in general and over a long
period of time, it might not be valid for particular securities or data
series. Consequently, you might want look at the distribution of your data
and perhaps use BETADIST() instead.


----- original message -----

"Fred Smith" wrote in message
...
Given an average return of 3.4% and a standard deviation of 7.4%, what's
the probability of losing money (ie, return less than zero)?

I'm interested in how to do the calculation as opposed the a specific
answer.

Thanks,
Fred