Annualised Standard Deviation computation - Aussie Stock Forums

# Thread: Annualised Standard Deviation computation

1. ## Annualised Standard Deviation computation

Hi

I need some help in the computation of Annualised Standard Deviation.

I understand that to annualise standard deviation the formula is:
Annualised Standard Deviation = Standard Deviation * SQRT(N) where N = number of months in calculation.

So to annualised a monthly standard deviation over a rolling period of 12 months, I do standard deviation * Sqrt(12)
To annualised a monthly standard deviation over a rolling period of 24 months, I use standard deviation * Sqrt(24)

However I am stuck when I am trying to annualise standard deviation over a rolling period of 3 months, and 6 months.

With a 3 months-period, do I do standard deviation * Sqrt(12/3), or standard deviation * Sqrt(12/4)
With a 6 months-period, do I do standard deviation * Sqrt(12/6), or standard deviation * Sqrt(12/2)

Cheers
Jack

2. ## Re: Annualised Standard Deviation computation

I think you are misunderstanding this. To annualize a standard deviation measure, you multiply by the square root of the number of observation periods in a year.

So if you are using weekly data, you multiply by SQRT( 52).

If you are using monthly data, you multiply by SQRT( 12).

The number of periods you are using for your "rolling" calculation is not relevant to the annualization of the result.

Does that make sense?

3. ## Re: Annualised Standard Deviation computation

Hi Snagglepuss

I knew I must have gotten it wrong somewhere.
Thank you for clarifying this for me

It all make sense now.

Cheers
Jack

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