STD and VaR Calcs

CFA Level III
#1

Quick clarification:

Do we divide and multiply by the square root of the ‘proper’ number scaling both up and down when calculating the correct STD to use in the VaR calculation?

Example: 5% VaR is Return +/- 1.65*STD

If we’re given the annual STD and we’re looking to answer on a monthly level, we would take the stated STD and divide by the square root of 12.

On the flipside, if we’re given the monthly STD but we’re looking at the VaR calculation on an annual basis, would we multiply the STD by the square root of 12 to arrive at an annual figure? Does it work that way?

Thanks and g/l everyone.

#2

Yes. Hedge funds do at times so beware that their sharpe ratio is biased upwards.

In general to calculate 1/n period returns and std dev

E® / n std dev / ( root n )