Standard Deviation

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Definition

YCharts has 3 types of Standard Deviations: Daily, Monthly, and Annualized Monthly.

The Daily Standard Deviation is the standard deviation of the daily returns of a security.

The Monthly Standard Deviation is the standard deviation of the monthly returns of a security.

The Annualized Monthly Standard Deviation is an approximation of the annual standard deviation. To approximate the annualization, we multiply the Monthly Standard Deviation by the square root of (12).

Formula

Example: Calculating the Standard Deviation of Monthly Price Returns (5Y Lookback)

We will begin by calculating the monthly returns every day for the past 5 years (1/1 - 2/1, 1/2-> 2/2, etc ...). This is 1260 periods (252 trading days * 5 years). We calculate the annualized standard deviation using these returns.

Other providers may calculate the standard deviation of a 5 year lookback by only looking at month-ends (1/30 to 2/28, 2/28 to 3/31, etc). This results in using 60 periods (5 years * 12 months) to calculate the standard deviation.

YCharts chooses to use the daily monthly returns since a monthly return does not only occur on month end, they occur mid-month as well.

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