Understanding the distribution of returns is essential for assessing a strategy’s risk and potential profitability. It helps traders evaluate how returns are spread over time, whether they follow a normal distribution or exhibit skewness. A highly volatile distribution may indicate significant risk exposure, while a stable distribution suggests consistency in returns. This metric also assists in detecting anomalies, such as extreme losses or gains, that may impact overall portfolio performance. Investors rely on return distribution analysis to improve strategy selection and risk management.