what is tail risk 
tail risk is a form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution tail risks include events that have a small probability of occurring and occur at both ends of a normal distribution curve understanding tail risktraditional portfolio strategies typically follow the idea that market returns follow a normal distribution however the concept of tail risk suggests that the distribution of returns is not normal but skewed and has fatter tails the fat tails indicate that there is a probability which may be larger than otherwise anticipated that an investment will move beyond three standard deviations distributions that are characterized by fat tails are often seen when looking at hedge fund returns for example the chart below depicts three curves of increasing right skewness with fat tails to the downside and which differ from the symmetrical bell curve shape of the normal distribution normal distributions and asset returns