1
$\begingroup$

Basic question , but if I do a daily regression and get an alpha of 0.00004. Should the yearly alpha be : 0.00004 *100 *252 = 1.008% OR 0.00004 * 100 *365 = 1.46%. What is considered the yearly alpha if one wants to know the outperformance of a manager annually? Should one use 252 trading days or 365 days in a year?

Also in the case of fund that has a total performance of 25% in 500 days, should the formula to annualize be : 1.25^(252/500)-1 OR 1.25^(365/500)-1 ?

Improve this question
$\endgroup$

1 Answer 1

Reset to default
2
$\begingroup$

You should use 252 trading days.

To annualize returns, multiply the average daily return by 252.

To annualize volatility, multiply the daily volatility by sqrt(252).

You can also use log daily returns if you prefer.

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.