Annualized Risk

Now, we're going to discuss annualization in terms of risk.

In practice, it is defined in a way that is analogical to the annualized return, and majorly used for comparing risk of different assets.

Risk measured by standard deviation the annualized value can generally be calculated using the following formula:

So, for example, if we're working with monthly risk - then annualized one could be computed using the next expression:

Or, in case of daily risk, to annualize we use time period equal to 252, since it is an approximate number of trading days in a year (excluding weekends and holidays), and the following expression is used for computing:

Below is a code example for computing annualized risks for the instance provided above:


              123456789
            
# Computing annualized risk for Nvidia
Nvidia_annualized = 0.007 * 252 ** 0.5
print('Nvidia:')
print(Nvidia_annualized)

# Computing annualized risk for AMD
AMD_annualized = 0.03 * 12 ** 0.5
print('AMD:')
print(AMD_annualized)

Task

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In this task you need to:

Compute the annualized risk vol_sony_annualized for the Sony Group Corporation stocks, using the given daily risk vol_sony, by defining the required time period T_sony, and applying the formula for annualized risk.
Compute the annualized risk vol_cola_annualized for the Coca-Cola Company stocks, using the given monthly risk vol_cola, by defining the required time period T_cola, and applying the formula for annualized risk.

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Section 1. Chapter 7

Annualized Risk

Now, we're going to discuss annualization in terms of risk.

In practice, it is defined in a way that is analogical to the annualized return, and majorly used for comparing risk of different assets.

Risk measured by standard deviation the annualized value can generally be calculated using the following formula:

So, for example, if we're working with monthly risk - then annualized one could be computed using the next expression:

Below is a code example for computing annualized risks for the instance provided above:


              123456789
            
# Computing annualized risk for Nvidia
Nvidia_annualized = 0.007 * 252 ** 0.5
print('Nvidia:')
print(Nvidia_annualized)

# Computing annualized risk for AMD
AMD_annualized = 0.03 * 12 ** 0.5
print('AMD:')
print(AMD_annualized)

Task

Swipe to show code editor

In this task you need to:

Compute the annualized risk vol_sony_annualized for the Sony Group Corporation stocks, using the given daily risk vol_sony, by defining the required time period T_sony, and applying the formula for annualized risk.
Compute the annualized risk vol_cola_annualized for the Coca-Cola Company stocks, using the given monthly risk vol_cola, by defining the required time period T_cola, and applying the formula for annualized risk.

Switch to desktop for real-world practiceContinue from where you are using one of the options below

Everything was clear?

Thanks for your feedback!

Section 1. Chapter 7

Switch to desktop for real-world practiceContinue from where you are using one of the options below