What It Means
A Z-score is a statistical measure of how many standard deviations a value sits from the average. In trading, it's used to flag when a price move or a ratio looks unusually extreme compared to its own recent history.
How It Works
A Z-score of 0 means a value sits exactly at the average; a Z-score of +2 means it's two standard deviations above average — statistically unusual, though not necessarily meaningful on its own. Traders and quantitative strategies use Z-scores to standardize comparisons across very different instruments (a stock and an index, or two stocks with completely different price ranges) on the same scale, since raw price differences aren't directly comparable but standardized deviations are. A common use is mean-reversion strategies, which bet that an unusually high or low Z-score will eventually pull back toward zero — though "eventually" and "will" are doing a lot of work in that sentence, since a genuinely unusual reading can also mean something real has changed.