ANNUALIZERISK

Annualize discrete estimates of standard deviation to account for the compounding effects on assets.

Description

If we assume that assets' time series instantaneous rates of returns are normally distributed, then its discrete returns are lognormally distributed. To account for this, we annualize measures of risk by converting the discrete means and standard deviations into its continuous counterparts prior to annualization.

To read more about the mathematics behind this, please see https://wpahelp.windhamlabs.com/expected-risk/annualizing-volatility-and-return

Syntax

The following describes the function signature for use in Microsoft Excel's formula bar.

=ANNUALIZERISK(mu, sigma, dataPeriodicity)

Input(s)

Argument	Description
mu	Required. Vector or time series matrix of discrete asset returns.
sigma	Required. Vector of risk estimates to be annualized.
dataPeriodicity	Optional. Periodicity of the data, used for annualization. If you do not enter the argument, it defaults to 1. e.g. Daily = 255, Monthly = 12, Yearly = 1, Quarterly = 4.

Output(s)

Vector of annualized risk estimates.

Example

53KB

ANNUALIZERISK.xlsx

Example Workbook: ANNUALIZERISK