What does 4.5% Volatility mean for L/S equity fund?
Someone told me the volatility of his fund is 4.5%? What does it mean? Is 4.5% the daily average volatility of returns?
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Annualized
The annualized volatility is 4.5%. At an extraordinarily basic level, here are two obvious conclusions:
1) At a 1 sharpe, their fund would be expected to return 4.5% annually. At 2 sharpe, it would be 9% annually, at 3 sharpe, it would be 13.5% annually.
2) The average daily vol of the fund would be 4.5 / sqrt (252) which approximates to about 28bps per day.
Thanks, very helpful!
where did u get 252? sorry if this is a bad question
252 Trading days in a year ;)
28 bps of what? Total exposure? Capital base?
28bps of daily volatility in returns on average assuming normal distribution (ie. P/l should make inside that range on average)
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