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Is the edge real?

StatisticsMedium

A desk made $900$ independent trades. Each trade has P&L with standard deviation $9$ , and the observed average P&L per trade is $0.6$ . Under the assumption that the true mean is $0$ , what is the $z$ -score of the observed average?

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Hint

Compute the standard error of the average first.

Solution

The standard error of the average is $9 \div 900$ .
Since $900 = 30$ , the standard error is $9 \div 30 = 0.3$ .
The observed average is $0.6$ above the assumed mean of $0$ .
So the $z$ -score is $0.6 \div 0.3 = 2$ .

Answer: $2$

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