Volatility of investment (/w currency hedging)

[egikm]

Hello,
I´ve been trying to compute a volatility of invesment with currency hedging and I have a question. Let's take this example. We have our money in a fond copying the S&P500 index, which has 16% volatility, we also know that the current volatility of a dollar toward our currency is 5%. We want to know the volatility of the whole invesment.


Can I compute as following? If so, what is the reason for adding the two deviations instead of mulitplying them considering the volalitity of an index and a currency are mutualy independent.

σ= ((16²)+(5²))<sup>1/2

Thank you</sup>

 

[Deleted member 4993]

Hello,
I´ve been trying to compute a volatility of invesment with currency hedging and I have a question. Let's take this example. We have our money in a fond copying the S&P500 index, which has 16% volatility, we also know that the current volatility of a dollar toward our currency is 5%. We want to know the volatility of the whole invesment.


Can I compute as following? If so, what is the reason for adding the two deviations instead of mulitplying them considering the volalitity of an index and a currency are mutualy independent.

σ= ((162)+(52))<sup>1/2

Thank you</sup>

Did you mean:

σ= ((16²)+(5²))^1/2

 

[egikm]

I did. Those should have been squares.

 

[egikm]

Do the formulas for variance apply here?