# Question on VAR

Statement 1 I believe is NOT true. Reason - way you adjust for returns say for Annual to monthly period is divide by 12 - but for Std Dev it is divide by sqrt(12). So it is not the same way.

Statement 2 is correct - therefore by elimination… So B

I think both are not correct?

Thanks CPK. Yes you are correct. Could you care to explain what statement B means.

When you are comparing multiple companies VAR’s - the difference is Return between 2 companies would cause an issue. because a higher return could mean a different number for comparison.

VAR = E® - x * Std Dev®

E® higher -> VAR would be a different number for comparison. You cannot compare different period VARs either. If you assumed E® would be 0 - it makes the job of comparison easier.

From my copy of Finquiz notes

hope this helps.

Isn’t conversion of VaR between different period is also multiply with square root of number days?

Var (year) = VaR (1-days) x sqrt(250)

Var (month) = VaR (1-days) x sqrt(20)

Var (week) = VaR (1-days) x sqrt(5)

^ yes

all those assume the E® to be zero. then you can do the math the way you have done it.

If however it is a non-zero return and you have E® for a day, and std dev for a day and needed to calculate var for a day vs. a year

Daily VAR = E® - x * std dev

Year VAR = E®*250 - x * std dev * sqrt(250)

assuming a 250 day year

and Year VAR <> sqrt(250) * Daily VAR.

I think this is what the 1st statement is talking about. What you do to adjust the E® is different from how you adjust the Std Dev. It would be the same way only if the E® is ZERO. For a non-zero number of E® the 1st statement is NOT true.