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Step 8: Riskese

Figure 8-1

The yellow area covered in one standard deviation away from the average in both directions accounts for approximately 68% of the outcomes in a period. The area within two standard deviations from the average, the yellow and green shaded areas, accounts for 95.6% of outcomes, and the area up to three standard deviations away from the mean, illustrated by the yellow, green and orange shaded areas, accounts for 99.7% of all outcomes. The higher an investment’s standard deviation, the greater the chance that future returns will lie farther away from the average return. Francis Galton, an English mathematician who was an expert in many scientific fields, created his “Quincunx� machine to demonstrate how a normal distribution is formed through the occurrence of multiple random events. He expressed his

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