Annualizing volatility

What this annualized volatility question tests

This is an easy statistics question that appears frequently in quant interviews and is fundamental to risk management. It tests whether you understand the relationship between volatility measured over different time horizons and can apply the square-root-of-time rule correctly.

The question assumes independent returns across periods—a standard simplification in finance—and asks you to scale daily volatility to an annual figure. This is a core skill for anyone working in trading, portfolio management, or risk, since annualized volatility is the standard metric used to compare risk across strategies and assets.

• The square-root-of-time scaling for independent returns
• Converting between different measurement frequencies (daily, monthly, annual)
• Understanding the assumption of return independence