tatistics for financial marketsStandard deviations are always expressed annually in the financial markets so being able to convert to annual standard deviations is critical.The daily standard deviation of the returns of a stock is 2%. What the annualized standard deviation?32.2%52.0%7.3%38.2%
Question
tatistics for financial marketsStandard deviations are always expressed annually in the financial markets so being able to convert to annual standard deviations is critical.The daily standard deviation of the returns of a stock is 2%. What the annualized standard deviation?32.2%52.0%7.3%38.2%
Solution
To annualize the daily standard deviation, you need to multiply the daily standard deviation by the square root of the number of trading days in a year. The standard number of trading days in a year is typically 252.
So, if the daily standard deviation is 2%, you would calculate the annualized standard deviation as follows:
Annualized standard deviation = Daily standard deviation * sqrt(252)
= 2% * sqrt(252)
= 2% * 15.87
= 31.74%
So, the closest answer to this would be 32.2%.
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