core practice · implementation task
Log returns and annualized volatility
From 5 consecutive adjusted closes, compute log returns r_t = ln(P_t/P_{t-1}). Estimate daily σ and annualize with √252. Show one line of code or formula per step.
The mechanism
Prices drift; returns are closer to stable. Vol is return std dev, usually annualized √252. Correlate returns, not prices.
Expected evidence
4 log returns; σ_daily; σ_annual = σ_daily×√252.
Try this drill in the practice workspace →
Hints when you need them
- Align returns to t, not t-1 price.
- Use sample std dev on returns.
Watch for these mistakes
- Regressing price levels
- Wrong annualization factor
- Look-ahead in return alignment