Discount Z-scores

Published Sep 23, 2026 · last substantive update Sep 23, 2026 · CEF Explorer editorial team (no individual byline claimed)

How the Z-score compares today's discount with the fund's own history, and the sample rules we use before showing one.

The Z-score answers one question: is this fund's current valuation unusual compared with its own recent history? It is computed as (current premium/discount − average premium/discount over the window) ÷ standard deviation over the window. A Z-score of −2 means the current discount is two standard deviations wider than the window average.

What it is not

A negative Z-score is not a statement that the fund is undervalued. It says the discount is wide relative to that fund's own average over that window. A fund whose discount has widened because its strategy stopped working can have a very negative Z-score for a very good reason.

Our rules

Observations are daily, and each requires a closing price and a NAV published for the same date. We do not forward-fill NAV.
Windows are 3, 6 and 12 calendar months, requiring at least 40, 80 and 160 paired observations respectively.
Standard deviation is the sample standard deviation (n − 1).
If the standard deviation is zero or the sample is too small, no Z-score is shown.

Hypothetical example. Over the last year a fund's discount averaged 8% with a standard deviation of 2 percentage points. Today it trades at a 13% discount. Z = (−13 − (−8)) ÷ 2 = −2.5. The discount is unusually wide for this fund — which is where the research starts, not where it ends.

Educational content only; not individualised advice. Examples are hypothetical. See the financial disclosures.