What are Z-scores and how are they used in finance?
An example of an AI chatbot conversation about Z-scores in finance and their applications.
What are Z-scores and how are they used in finance?
Z-scores measure how many standard deviations a data point is from the mean. In finance, they help assess risk.
Can you explain how to calculate a Z-score?
Sure! The Z-score is calculated using the formula: Z = (X - μ) / σ, where X is the value, μ is the mean, and σ is the standard deviation.
What does a high Z-score indicate in financial analysis?
A high Z-score indicates that a data point is far from the mean, suggesting it may be an outlier or a sign of potential risk.
How can Z-scores be applied in credit risk assessment?
In credit risk assessment, Z-scores can help identify borrowers who are likely to default by comparing their financial metrics to historical data.
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