5. Annual volatility for a particular company share is 32%. Assuming 256 days in
ID: 2648146 • Letter: 5
Question
5. Annual volatility for a particular company share is 32%. Assuming 256 days in a year, what is the daily volatility likely to be?
6. I am examining two investment strategies, both of which promise annual returns of 10% and annual volatilities of 15%. Strategy 1 has a skewness of -0.8, while Strategy 2 has a skewness of +0.3. As a risk-averse investor, which strategy should I choose?
7. For a positively skewed distribution, the arithmetic mean usually lies above the median.
5. Annual volatility for a particular company share is 32%. Assuming 256 days in a year, what is the daily volatility likely to be?
Explanation / Answer
Answer 1 (5) Daily volatility = Annual volatility/ Square root of annual trading days
= 32/16 = 2% Approx
Answer 2 (6) : You should choose +.3 skewness. All things equal except skewness, a risk averse investor will always chosse positive skewness over the negative as a distribution with positive skewness mean more positive returns spread till fa right of the curve.
Answer 3 (7): Answer is True, Usually, arithmetic mean lies above the median for a positively skewed distribution. Reason being, for a positively skewed distribution, higher values lie far in the right from the median and less extreme values below the median.
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