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My boss came to me today with "how do I convert this monthly vol to annual?". This is by far not the first time someone asked me to convert x-period volatility to y-period volatility. If you're having troubles doing this, here is a simple trick to remember: figure out the multiplier as if scaling were linear, and take the square root of that multiplier. For example, returns scale linearly with time. If someone gives you a monthly returns to convert to annual, you would simply multiply it by 12. So, in the case of converting monthly to annual volatility multiply it by √12. If someone gives you annual returns and asks you to calculate daily returns you would divide it by 252. To convert annual volatility to daily volatility divide it by √252.
P.S. √252≈16, which is the reason for "rule of 16" for converting daily to annual volatility.
P.P.S. To convert:
P.P.S. To convert:
| Daily to weekly | -> | multiply by √5 |
| Daily to monthly | -> | multiply by √21 |
| Daily to quarterly | -> | multiply by √63 |
| Daily to annual | -> | multiply by √252 |
| Weekly to daily | -> | divide by √5 |
| Weekly to monthly | -> | multiply by √4 |
| Weekly to quarterly | -> | multiply by √12.5 |
| Weekly to annual | -> | multiply by √50 |
| Monthly to daily | -> | divide by √21 |
| Monthly to weekly | -> | divide by √4 |
| Monthly to quarterly | -> | multiply by √3 |
| Monthly to annual | -> | multiply by √12 |
| Quarterly to daily | -> | divide by √63 |
| Quarterly to weekly | -> | divide by √12.5 |
| Quarterly to monthly | -> | divide by √3 |
| Quarterly to annual | -> | multiply by √4 |
| Annual to daily | -> | divide by √252 |
| Annual to weekly | -> | divide by √50 |
| Annual to monthly | -> | divide by √12 |
| Annual to quarterly | -> | divide by √4 |
Interested in learning how to trade VIX futures and ETFs? Do not miss out the next great opportunity to short vol.
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I have weekly volatilities over 370 weeks, I like to convert this into an annulized volatility..How does this work?
ReplyDeleteThere are 52 weeks in a year, so divide the weekly volatility by √52.
ReplyDeletemultiply it by root 52, not divide
ReplyDeleteYes, anonymous, you're correct. From weekly to annual you need to multiply by √52
ReplyDeleteI have daily volatility. How can I convert it to monthly volatility? How about multiply it by root 30? Thank you for your help.
ReplyDeleteBetter multiply by sqrt(21) - approximate number of trading days in a month.
ReplyDeleteThis is always a debatable issue
Deletethat how much Days should use to
convert Daily volatility to other specifice time period as
(one week or month , year etc
Because as India's Top exchange
* NSE * Uses √365 to transform
Daily Volty to annulized Volty
But in US they use √252
So my opinion is to follow the exchange in which one is trading
Plz share your opinion
I have two questions.
ReplyDeleteHow can I convert monthly volatility to quarterly volatility?
How can I convert daily volatility to quarterly volatility?
Thank you in advance
I have daily volatility how can i convert it in hourly?
ReplyDeleteDivide by sqrt(6.5). 6.5 represents number of trading hours.
Delete