Thanks for opening this question.
I have constructed some rules for a portfolio with annual rebalancing and am backtesting it for the period 1990-2014. I want to compare the risk-adjusted return to the risk-adjusted return of the S&P 500 index.
For every individual year I have calculated log returns of the constituents of the portfolio and calculate portfolio volatility for every year using the following formula in Excel:
First I compute the variance like this:
array1: array of weights of constituents of the portfolio*annual volatility of the constituent for every constituent in that year
array2: constituents return correlation matrix
array3: transpose of weights of constituents
And then I SQRT() the variance to get the annual portfolio volatility.
Now I am wondering if I can use the annual portfolio volatilies to compute volatilities for certain subperiods, say for example January 2013 - September 2014.
I could compute the portfolio volatily for the period Jan 2013 - Dec 2013, and for the period Jan 2014 - Sept 2014, but how do I then combine the result?
Thanks for helping me out.