Annualizing volatility
Definition · Level 9 · Risk & portfolio
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Turning a daily volatility into a yearly one by multiplying by the square root of the number of trading days: σ annual = σ daily × √252 ≈ σ daily × 15.87. 252 is the usual US count.
Example
Daily σ 1% → 1 × 15.87 ≈ 16% a year. Going back: 16% a year ÷ 16 ≈ 1% a day.
Where Tradecraft teaches it
Level 9 · Risk & portfolio, in the lesson “Volatility, correlation & beta”: Annualize volatility, read correlation and beta, and see how mixing assets lowers portfolio risk.
Related terms
- CorrelationStandardized co-movement of two return series, from −1 (opposite) to +1 (lockstep): Cov ÷ (σA × σB).
- CovarianceAverage product of two assets’ deviations from their means; its sign shows the direction of co-movement but its size depends on each asset’s…
- DiversificationCombining imperfectly correlated assets so the portfolio’s volatility is below the weighted average of the individual volatilities; the benefit…
- 1RThe dollar amount at risk on a trade (entry-to-stop distance × size), used as the unit for measuring every result.
- AlphaReturn earned above what the asset’s market exposure predicts: Rp − [Rf + β(Rm − Rf)].
- AnchoringFixating on an arbitrary reference price, such as your entry or a prior high, when judging what something is worth now.