Module 6 of 6 in Stock market foundations
Probability and statistics for investors
Probability and expected value, averages and volatility, correlation and causation, and how numbers and charts can mislead.
4 lessons in this module. Progress is saved in your browser as you go.
Markets are uncertain, and the tools for thinking about uncertainty are simple once they are explained without jargon. This module covers the probability and statistics that later paths rely on: expected value, averages and the spread around them, correlation, and the common ways numbers are presented to mislead.
It is the last module of the foundations path because it builds on everything before it. If you plan to study technical analysis, portfolios or derivatives, do not skip it.
By the end of this module you should be able to
- Calculate an expected value and explain why a positive expected value does not guarantee a good outcome.
- Calculate a mean, median and standard deviation and explain what volatility measures.
- Interpret correlation and explain why correlation does not show causation.
- Spot misleading statistics and charts, such as cherry-picked periods and truncated axes.
Lessons in order
Module test
10 questions, chosen at random from a bank of 32 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Percentages, percentage change and percentage points: Probabilities and returns are both written as percentages, and repeated changes multiply.
- The risks of investing in shares: This lesson puts numbers on the risks described there.