Sorry for the dumb question, but I wanted to make sure my understanding of what I read and compiled was correct! I am trying to calculate the variance-covariance matrix, and annualized volatility of a multi-crypto portfolio. My method is as follows:
- got the daily prices of the cryptos in the portfolio. Given for one of the assets, only ~120 days of prices exist, I have a sample of 120 prices.
- I compute the percent daily change
- I calculate the variance-covariance matrix on these daily changes. Then, do I have to multiply by 120, or 365 ? I am trying to get the portfolio volatility, and I read everywhere that this should be annualized. For stocks, it's by multiplying 252, but for crypto is it 365 (24/7 trading)?
- I then calculate the dot product of the variance-covariance matrix and weights, and once more the dot product of what I get by the weights The square root of this then is annualized volatility?? What happens if I don't multiply by 120 / 365? Is this a useful metric?
Lastly, if I want to get the VaR of my portfolio, I can multiply the volatility by the z value ~ 1.64?
Does this make sense, or am I completely wrong and I have to hit the books again??
EDIT: distribution of BTC returns over 2 years